More than 100 bitcoins linked to defunct cryptoexchange QuadrigaCX mysteriously transferred

More than 100 bitcoins previously held in inaccessible virtual wallets linked to the defunct QuadrigaCX cryptocurrency exchange have been transferred four years after the death of the company's founder led to its collapse.

It's not clear who moved the 104 bitcoins this month, worth about $2.4 million, or how anyone could have done it. Bankruptcy trustee Ernst & Young Inc. said in 2019 that it was unable to access the wallets, meaning funds could not be recovered to help compensate users who lost money when the exchange shut down.

“Unfortunately, all we know now is that these transfers are unauthorized,” said Magdalena Gronowska, a member of Quadriga's affected users committee. "Hopefully the blockchain trace provides more information and that we can trace and initiate a recovery of some funds."

Ms. Gronowska noted that some bitcoins were sent to crypto mixing services, which hide the origin and owners of the funds, making recovery efforts more challenging.

The collapse of the exchange began in December 2018, when Gerald Cotten, founder and CEO of Quadriga Fintech Solutions Corp., died due to complications from Crohn's disease during his honeymoon in India.

Read in depth: How did Gerald Cotten die? A Quadriga mystery, from India to Canada and back

Quadriga was once the largest cryptocurrency exchange in the country, and EY discovered that Mr. Cotten, who lived in Nova Scotia, was the only person with the passwords necessary to access the digital wallets in which the funds of the clients. As a result, some 76,000 users were owed $215 million when he died.

The Ontario Securities and Exchange Commission later concluded that Mr. Cotten, operating without internal supervision or controls, he was running a Ponzi scheme. He opened fake Quadriga accounts under aliases, credited himself with cryptocurrency, and proceeded to make trades. When his bets went wrong, Mr. Cotten used client funds to cover his trading losses, as well as misappropriating money to finance his lifestyle.

In February 2019, one day after the Nova Scotia Supreme Court granted Quadriga creditor protection, the exchange inadvertently transferred the 104 bitcoins to cold storage wallets that it did not have the private keys to access. Cold wallets are offline storage facilities where cryptocurrencies are kept to protect them from hackers.

EY said at the time the transfer was an "error" and was told by Quadriga management that a configuration on the platform had been changed in error, triggering the automatic transfer.

Those funds have since moved on after sitting dormant for more than three years. The transfer came to light through a Twitter user named ZachXBTthat exposes bad actors in the cryptocurrency and non-fungible token markets.

EY said in an update to users on Tuesday that it did not initiate the transfers. A spokesman for Miller Thomson, the law firm that represents Quadriga users, declined to comment.

Jennifer Robertson, widow of Mr. CottenHe said he was surprised to learn of the transfer. “My head is still spinning with all the possibilities,” Robertson said in an email, adding that he hopes users will be able to recover the funds.

“This is news that I never anticipated hearing and I fear the wave of new conspiracies that I am sure will arise because of this,” he said.

Ms. Robertson suffered harassment and death threats from some aggrieved users who suspected she was involved in her husband's fraudulent activities.

Users have yet to receive compensation and EY has only managed to recover $46 million in assets. The process has been slow in part because the Canada Revenue Agency had to conduct an audit to determine the taxes owed by Quadriga.

“The CRA audit has been the main obstacle to moving towards a distribution in this case,” Miller Thomson said in an update to users this past August. The CRA filed its claim that month, which Miller Thomson said is a "material step" toward compensating users.

Quadriga's downfall and the death of its founder garnered global media attention at the time, and has generated a stir ever since. netflix documentary and a memoirs of Mrs. Robertson. In December 2019, Miller Thomson made a failed request the RCMP to exhume Mr. Cotten's body and carry out an autopsy, given the “questionable circumstances” surrounding his death.