Over 100 bitcoin belonging to collapsed crypto exchange QuadrigaCX has left wallets tied to the exchange, with a majority flowing through a privacy tool. That probably isn’t good news.

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Whispers in the dark

The narrative

QuadrigaCX is back in the news! For those of you who weren’t here back then: A Canadian crypto exchange collapsed in dramatic fashion in January 2019 after its founder apparently passed away in India due to complications from Crohn’s disease.

Why it matters

It turned out the exchange owed thousands of customers around $200 million in crypto (at prices at the time). It later came out that the exchange’s founder and CEO, Gerald Cotten, had misappropriated customer funds for personal purposes. He also left behind little paperwork or records, making it difficult for investigators to actually verify what assets or liabilities Quadriga had... Sound familiar?

Breaking it down

That’s ancient history by current standards. Ernst and Young, a Big Four auditor, is acting as the company’s bankruptcy trustee and has spent much of the last 3+ years investigating Quadriga, trying to find the company’s assets and recover what funds it could. The Canada Revenue Agency is also digging into Quadriga, checking on taxes the exchange may not have filed when it was operating.

Early on, in February 2019, EY revealed it had accidentally sent over 100 bitcoin (BTC) to what it described as Quadriga’s cold wallets, which it could not access.

Last Friday, someone pulled all 104 BTC out. And promptly moved at least 70 or so of that to Wasabi Wallet, a privacy service. EY confirmed it wasn’t anyone on the auditor’s team, implying someone has either had access to these wallets for the last four years or someone found the keys after nearly four years. Either way, it’s yet another blow to the crypto exchange, which is still going through its bankruptcy proceedings.

Crypto analytics firm Chainalysis said the movements are similar to bitcoin that left defunct trading service BTC-e’s wallets a few weeks ago.

This is obviously not great news. EY and Miller Thomson, the law firm representing Quadriga creditors, did not return requests for comment earlier this week. In nearly identical statements, the two firms said they were investigating the “unauthorized transactions.”

A number of questions will have to be answered. Why did EY believe the addresses in question were cold wallets, and what work have they done over the past four years to try and verify that they couldn’t find the keys?

Furthermore, the case at this point appears to be held up largely by the Canada Revenue Agency, but EY hasn’t published any reports on the bankruptcy case since January 2021, and its last notice to creditors was in February 2021. Crypto prices have changed dramatically since then, so it’s unclear what exactly creditors will recover.

More FTX news

Sam Bankman-Fried is now in the U.S., having been extradited Wednesday from the Bahamas, just over a week after police in the Bahamas arrested him.

While he was in the air, U.S. Attorney Damian Williams announced that Bankman-Fried’s former associates – onetime Alameda Research CEO Caroline Ellison and FTX-co-founder Gary Wang – had pleaded guilty to various charges and were cooperating with prosecutors. The Securities and Exchange Commission and Commodity Futures Trading Commission added charges of their own, similarly to their case against Bankman-Fried.

Read the last few days’ coverage here:

• FTX’s Bankman-Fried Gave Ex-Jane Street Traders Who Formed Modulo Capital $400M
• FTX Has Over $1B in Cash, Creditor Meeting Told
• Sam Bankman-Fried Is Being Extradited Wednesday, Bahamas Attorney General Says
• Alameda's Caroline Ellison, FTX's Gary Wang Plead Guilty to DOJ 'Fraud' Charges, Also Settle With SEC, CFTC
• Caroline Ellison Plea Agreement: $250,000 Bail, Surrender of Travel Documents, Forfeiture of Assets

Bankman-Fried is set to appear in a New York courthouse on Thursday. Keep watching CoinDesk for updates as they come.

Biden’s rule: Changing of the guard

The U.S. Senate has confirmed Acting Federal Deposit Insurance Corporation Chair Martin Gruenberg to a full term heading the agency.

Outside CoinDesk:

• (New York Magazine) New York Magazine profiled some small-time crypto news outlet which published a story last month about an exchange.
• (Techdirt) Twitter’s been chaotic recently. CEO Elon Musk banned several journalists on questionable pretenses after banning a flight tracking account on what appear to be false pretenses, made a show of unsuspending them without actually doing so and has changed several policies in very short order. In other news, I’m on Mastodon now.
• (Politico) I actually have not been following this case that closely yet but a ConsenSys AG case in Switzerland is, in the words of Politico, “heating up.”

If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Twitter @nikhileshde.

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See ya’ll next week!