How We Conducted Our Review
OSC Staff collected documentary, digital and witness evidence from both domestic and international sources, and spent months analyzing this data. We engaged external blockchain experts to assist us in analyzing the movement of assets to and from Quadriga.
As our powers to collect evidence are limited outside Ontario, we relied on our regulatory partners to help us collect evidence in other jurisdictions. We sought assistance from a dozen other regulatory bodies, which enabled us to uncover important information from outside Ontario to assist in our review.
We interviewed and obtained documentary evidence from witnesses across a number of Canadian and foreign jurisdictions.
During our review, we interviewed and obtained documentary evidence from witnesses across a number of Canadian and foreign jurisdictions. Interviews were conducted by phone, video conference or in person at the OSC’s offices in Toronto. Certain key interviews were conducted in other jurisdictions.
We interviewed key individuals associated with Quadriga and Cotten, including former Quadriga contractors and professional advisors. We also received evidence from Cotten's spouse, Jennifer Robertson (Robertson) as well as several affected clients who reached out to the OSC to share their stories. We also attempted to contact Michael Patryn (Patryn), one of Quadriga’s co-founders; however, Patryn did not respond to our attempts to contact him. The evidence indicated that Patryn ceased to be associated with Quadriga after 2016 and that the majority of client funds were deposited with Quadriga after Patryn’s departure.
Based on the evidence we reviewed, Quadriga did not maintain proper accounting records from 2016 onward. There may have been company records accessible only to Cotten and we did not access or review encrypted devices owned by Cotten. By court order, Ernst & Young was authorized to hand these devices over to the RCMP. However, none of the witnesses, including key Quadriga personnel, reported being aware of Quadriga books or records beyond those which we reviewed. Similarly, based on the evidence we reviewed and witness testimony, Quadriga did not have any proper system of internal controls and supervision over any aspect of its operations.
We gained insight into Quadriga’s operations, analyzed Cotten’s covert trading with clients on the platform, and calculated that this trading caused the bulk of the $169 million asset shortfall.
Quadriga did not maintain proper financial records and relied on third-party payment processors to process deposits and withdrawals to and from the platform. We gathered and analyzed records from these and other entities to reconstruct Quadriga’s affairs. We obtained a significant volume of records from third parties such as banks and payment processors to build a deep understanding of Quadriga's handling of fiat currencies (currencies backed by a national government like the Canadian dollar).
We compelled platform data and thousands of Quadriga-related emails from Ernst & Young pursuant to a summons. The platform data we analyzed relates to over 368,000 client accounts and over 6 million individual transactions, including deposits, withdrawals, and trades. This transaction data includes detailed information such as date and time, asset type, price and the client accounts involved. Our analysis, the results of which are discussed later in this report, included calculating a running asset balance for each account, determining the daily cumulative effect of Cotten's trading with fake assets, and reviewing the overall trading to understand how clients interacted with the platform and trends over time.
In order to determine how Cotten managed client assets entrusted to Quadriga, we analyzed blockchain transaction data and obtained records from several other crypto asset trading platforms. Tracing assets moving through these platforms carries inherent challenges. For instance, despite the transparency virtues associated with blockchain transactions being posted to a public ledger, the wallet addresses of senders and recipients in these transactions are generally anonymous. (In contrast, bank accounts are connected to identifiable individuals and corporations, making it is easier to see who has sent and received funds.) In addition, we sought records from three other crypto asset trading platforms but experienced jurisdictional hurdles that resulted in us not obtaining this evidence. Despite these challenges, we confirmed that Cotten moved Quadriga client assets to other crypto asset trading platforms where he then traded with these assets.
Through our review, we gained insight into Quadriga’s operations, analyzed Cotten’s covert trading with clients on the platform, and calculated that this trading caused the bulk of the $169 million asset shortfall.