Big Four audit firm Ernst & Young (EY) have found what seems to be solid evidence that the late owner of defunct crypto exchange QuadrigaX had been transferring user funds off the platform and using them to trade with fake accounts on other platforms.
The fifth report from EY, who was appointed court monitor in ongoing litigation, was filed with the Supreme Court of Nova Scotia yesterday. In it, EY has provided damning evidence that the exchange was “significantly flawed from a financial reporting and operational control perspective”.
Gerald Cotten, the deceased owner, is thought to have been the single individual in charge of most of the activites. There was also a shocking lack of segregation between job tasks and basic internal controls. Assets were also not kept separately from Quadriga itself or its users.
EY says that because of this, the exchange could not possibly know if it was profitable, since user funds were mixed together with the exchange’s wallets. In addition:
“Significant volumes of Cryptocurrency were transferred off Platform outside Quadriga to competitor exchanges into personal accounts controlled by Mr Cotten. It appears that User Cryptocurrency was traded on these exchanges and in some circumstances used as security for a margin trading account established by Mr Cotten.”
Falsified accounts were also detected on Quadriga under aliases, supporting the theory that unbacked deposits were used to trade on the platform, leading to inflated revenues, artificial trade volumes and user numbers, and the withdrawal of user deposits. The fees and commission, as well as trading losses on external platforms further impacted QuadrigaX’s crypto reserves.
Finally, EY could not confirm the identity of wallet holders where huge sums of Quadriga crypto was transferred to. Quadriga owes some 76,000 users an aggregated value of funds worth CAD 214.6 million (USD 162.2 million).
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