First they were robbed of $190 million worth of cryptocurrency. Now Canada’s taxman is coming for them.
The multinational auditing firm is the defunct cryptocurrency exchange’s court-appointed bankruptcy trustee. In its Sixth Report to the judge overseeing the case, Ernst & Young announced that it intended to comply with the Canadian tax authority’s request for customer records.
Specifically, it is planning to share a database containing the “account balances and transaction data of affected users.”
QuadrigaCX collapsed in December 2018 after its founder, Gerald Cotten, died suddenly in India—reportedly of complications due to Crohn’s disease. His widow claimed that Cotten was the only person with access to the exchange’s cold wallets, meaning that cryptocurrency worth as much as $190 million (at the time of the incident) belonging to tens of thousands of customers was irretrievable. Or so customers thought.
However, further investigation by Ernst & Young has suggested that these reportedly inaccessible wallets were virtually empty. A murky corporate structure and stories of mismanagement and theft have prompted allegations that Cotten’s untimely passing was used to cover up a massive fraud—and rumors his death may have been fabricated. The Official Committee of Affected Users has even asked the court to have his body exhumed for testing.
At last count, about $138 million had gone missing, and another $25.4 million is locatable and probably retrievable.
In this report, Ernst & Young said the affected users’ committee did not have an objection to this database being handed over to the CRA—on the condition the users “shall have no liability or obligation” in connection with its production.
Which seems unlikely.
Lawyers representing these users said “extensive debate” had taken place “regarding the inherent personal nature and value of the privacy interests affected.” Nonetheless, the committee concluded that it was in the best interests of users to focus on recovering funds rather than engaging in a legal fight with the CRA.
Which doesn’t mean it was a popular decision.
Magdalena Gronowska described the regulator’s request on Twitter as “an unprecedented affront to individual privacy”—suggesting it was a fishing expedition that could have long-term ramifications for how Canadian cryptocurrency exchanges operate.
Gronowska, who was appointed by a Canadian court to sit on the Committee of Affected Users of Quadriga, wrote that given the limited funds recovered, some QuadrigaCX victims “have little remaining but their privacy.”
She also expressed skepticism about the CRA’s intentions—warning that the data would be an “incredible coup” for the regulator and create an “immense” temptation to audit users. Although “ability” might be a more accurate word than “temptation.”
The tax agency is demanding all names and “know your customer” identification information collected by QuadrigaCX, Gronowska posted.
Beyond that, she wrote, the CRA also wants digital wallet addresses and address mapping; details of all fiat currency sent to or from QuadrigaCX by third party payment processors; details of all transaction data including trades, transfers, balances, and withdrawls; and all banking data uploaded by users to prove their claim to any recovered funds.
Actually, the CRA had requested a lot more data about QuadrigaCX itself, including complete annual financial statements and corporate tax returns from QuadrigaCX. Ernst & Young warned that most of that data “simply did not exist.”
In part, the trustee said this was due to an “inability to locate any traditional books and records, including accounting records maintained by Quadriga.”
Of course, Ernst & Young earlier reported that the QuadrigaCX platform was intentionally designed so that no logs were kept of Cotten’s activities—an extremely uncommon practice.
There was also evidence of phantom trades and a number of fake accounts controlled by Cotten. And by evidence we mean accounts registered to “people” with names like Aretwo Deetwo and Seethree Peaohh.
Updated 5:04 p.m. to that Magdalena Gronowska’s is a member of the Committee of Affected Users of Quadriga.