Top Canadian law firms are jockeying for position to represent people who have money tied up in a cryptocurrency exchange that became frozen after the mysterious death of its founder in India.
Gerald Cotten, possibly holding the only keys to money tied up in his virtual currency exchange, died in December.
His sudden death set off a wave of outrage as clients tried to retrieve their funds — only to face a frozen website and a lack of information.
On Tuesday, Nova Scotia Supreme Court Justice Michael Wood released a decision after accepting applications from at least four named law firms that each represent the interests of more than 100 of the 115,000 clients of Quadriga Coin Exchange or Quadriga CX which is operated by Quadriga Fintech Solutions Corp.
In total, clients are owed approximately $250-million, according to Wood’s decision filed Feb. 19.
Since the initial creditor protection hearing on Feb. 5, the court had received competing motions on behalf of Quadriga clients who are owed a few hundred to several million dollars, according to the court decision.
All parties seek to have a committee of creditors and legal counsel appointed to represent their varied interests — with a reasonable cap and control on the fees that can be charged.
The challenge, according to the judge, is the varied interests of the vastly different creditors all looking to recover their cash.
This amid fears some of the money has already vanished.
A week ago, the court-appointed monitor overseeing the search for millions lost by the Canadian cryptocurrency exchange, reported that an additional half-million dollars worth of bitcoin had disappeared.
Ernst and Young reported that Quadriga “inadvertently” transferred bitcoins to cold digital storage wallets that were inaccessible, making clients short funds even more nervous.
Dead or alive?
“The business is currently suspended and may never resume, although that remains to be determined,” Wood wrote.
He said there’s been “a great deal of discussion” online about Quadriga — and where the cash has gone, noting the vast array of blockchain detectives all vying to prove exactly what has happened to the missing cash.
Lawyers for both a monitor appointed by the court — and the applicants — urged the court to make a decision as fast as possible before the next hearing scheduled for March. 5, in order to enable a suggested $100,000 cap on legal expenses.
For people short investments, the legal process seems slow, and many say they are frustrated.
A few dozen moved to start a class-action — only to have their retainers returned by the organizer, after the court gave Quadriga 30 days of protection against any legal action.
Alan Nanut of Toronto says he has about $22,000 invested that he’s not sure he’ll get back.
“I don’t regret purchasing cryptocurrency. It was a speculative investment for the long term.
However I do regret not moving cryptocurrency off the exchange with ample time and sufficient signs of shady news leading up to the shutdown and CCAA commencement,” he wrote to CBC, in an email documenting his transactions.
Nanut and others describe business with Quadriga as a learning experience.
“My faith in exchanges has been tarnished,” he said. But for those trying to unravel what’s now become an international crypto-drama — there were clues there might be problems.
When Cotten still had an office on Water Street in Vancouver five years ago, he described his venture on a podcast called True Bromance.
Hosts Sage Brocklebank and Michael Karl Richards said Cotten was “attractive and enigmatic.”
‘Like burning cash’
Cotten described virtual cash as the new form of day trading, painting a picture of an online gold mine.
But he did warn the hosts about the danger of losing access to keys or passwords needed to access bitcoin investments.
“It’s like burning cash in a way,” Cotten said back in 2014. “If you’ve lost the private key. It’s impossible to retrieve those.”
But he also described how the strings of numbers that are left after each transaction — can be chased.
And as the legacy left unfolds — hundreds of self-proclaimed experts — are doing just that.