4 Agencies Are Investigating Crypto Exchange QuadrigaCX

At least four different law enforcement and regulatory agencies are investigating defunct Canadian crypto exchange QuadrigaCX, a new report by bankruptcy trustee Ernst & Young (EY) said.

George Kinsman, the court-appointed bankruptcy trustee and EY employee overseeing the exchange's shutdown and the return of funds to its users, wrote a new report Monday sharing some information about EY's ongoing attempts to recover crypto and fiat for its creditors.

The document outlines the different investigations surrounding the exchange, as well as EY's motion to transfer QuadrigaCX's ongoing bankruptcy proceedings from Nova Scotia to Ontario, which the Big Four auditor says will reduce costs moving forward.

The Royal Canadian Mounted Police (RCMP), FBI and reportedly an Australian investigative agency are all looking into the project, as CoinDesk previously reported. There also appears to be another investigation, though the agency behind it has not been disclosed.

"The Trustee is aware of at least four (4) independent active law enforcement or regulatory reviews in progress which have included inquiries or in some cases formal requests for documents and/or data disclosure from the Trustee," Kinsman wrote Monday. "Other agency requests may subsequently materialize."

One of these requests is subject to a confidentiality requirement, and Kinsman cannot share any further details, he said. There may also be statutory restrictions.

Kinsman expects law enforcement and regulatory agencies to continue their investigations, however, and says their "demands may be significant," adding:

"Furthermore, as a result of the confidentiality and non-disclosure restrictions inherent in these processes, the Trustee is unable to share details with and obtain approval of its activities from the Inspectors and therefore will require ongoing direction from a court. In addition, given the complexity of the requests made or anticipated to be made of the Trustee, it is expected that multiple court attendances will be required to obtain assistance with these issues and provide direction to the Trustee."

Quadriga collapsed earlier this year when founder and CEO Gerald Cotten – and the exchange's only actual employee – was reported dead. He was also the only individual with access to the exchange's holdings, though subsequent investigations revealed that Cotten had used customer funds to purchase personal luxury items (such as private aircraft and boats), as well as margin trade small-cap cryptocurrencies (like OMG and DOGE).

Venue change?

Kinsman also reported that EY is filing to have Quadriga's ongoing bankruptcy process shifted out of its current jurisdiction in Nova Scotia to Ontario. He believes that this will reduce costs for the bankruptcy process in the long run, as well as streamline the bankruptcy process.

Some of the court appearances EY might request will come on "an urgent and confidential basis," which may be easier to arrange in Toronto than in Nova Scotia, Kinsman wrote.

"The Trustee appreciates that the Nova Scotia Court has a busy docket which may not easily be able to accommodate the anticipated multiple attendances, potentially on short notice," he said, adding:

"Given the above and the fact that the majority of the professionals expected to be involved with the court attendances are based in Toronto, the Trustee expects that it would be more cost-effective for future motions to be heard by a court in Toronto, eliminating the need for a significant number of professionals to incur costs to travel from Toronto to Halifax."

The majority of the attorneys and a plurality of creditors are also based out of the Toronto area, meaning it would be easier for individuals to attend hearings if they wish to, he wrote. EY is also managing a significant amount of its document production process through its Toronto team.

Regardless of the move, EY's remaining tasks include managing its ongoing claims process, which concludes on Aug. 31; raising funds by selling certain assets belonging to Cotten's estate; and continuing its efforts with law enforcement agencies.

Kinsman will provide updates on the claims and asset recovery processes at a later date, he wrote, adding that "some assets have been monetized to date in accordance with [a previous] Asset Preservation Order."

There will be a hearing

in Halifax, Nova Scotia, on the morning of Sept. 10, where a judge will approve or reject the motion to move the proceedings.

Nova Scotia Supreme Court image by Nikhilesh De for CoinDesk