A report by auditor EY indicates that the CEO of transferred client funds to his own accounts on other exchanges.
Gerald Cotten, who at the end of last year, is thought to have also then traded on his own account with those cryptocurrencies.
EY’s report describes QuadrigaCX as a company with almost no operational controls and near non-existent financial reporting procedures.
“Quadriga’s operating infrastructure appears to have been significantly flawed from a financial reporting and operational control perspective,” the report said.
“Activities were largely directed by a single individual, Mr. Cotten, and as a result typical segregation of duties and basic internal controls did not appear to exist.”
Big losses
According to EY’s report, QuadrigaCX transferred 9,450 Bitcoin, 387,738 Ethereum and 239,020 Litecoin out of its client accounts from 2016 through to the beginning of 2019.
“It appears that user cryptocurrency was traded on these exchanges and in some circumstances used as a security for a margin trading account established by Cotten,” the report said.
Unfortunately for Cotten’s clients, it appears he also wasn’t a particularly good trader. Aside from being “adversely affected” by all of the fees charged by the exchanges he transferred cryptocurrency to, the former QuadrigaCX CEO lost money when he traded his clients’ funds.
“The conversion of user cryptocurrency into other currencies through competitor exchanges resulted in incremental fees being incurred and currency exchange fluctuations relative to the original currency generating gains and losses,” the report said.
“In addition, it appears that the activity in the exchange accounts resulted in overall trading losses.”
On one margin trading account, it appears that Cotten, who ran QuadrigaCX from his laptop, made approximately 67,000 transactions, trading heavily in digital assets that weren’t available on his own exchange.
QuadrigaCX’s CEO also transferred 21,501 bitcoin into an offshore exchange. Over the course of three years, he liquidated all of those funds, with the exception of 8 bitcoin, for the cash equivalent of CAD 80 million ($60.7 million).
EY’s report also updated to QuadrigaCX’s clients. According to the report, the exchange owes CAD 74.1 million ($56.19 million) in fiat currency and CAD 140.5 million ($106.5 million) of cryptocurrency to its clients.
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