FBI Probing Bitcoin Exchange Quadriga Over Missing $136 Million, Source Alleges
The Federal Bureau of Investigation and the Royal Canadian Mounted Police are said to be looking into the implosion of Quadriga, a cryptocurrency exchange that has been unable to account for at least $136 million in customer funds since the mysterious death of its 30-year-old CEO in December. These types of investigations, while giving cryptocurrency a bit of a black eye, are necessary to showcase the regulation and transparency that are keys for moving the industry forward.
Jesse Powell, the CEO of crypto exchange Kraken, said that both law enforcement agencies have been in touch with his company in recent weeks as part of an effort to determine what happened at Quadriga, which is currently seeking court protection from creditors in Canada. By providing honest, open and transparent answers, authorities can get to the bottom of their investigation more quickly and share those details with the public at large.
The inquiries are the latest twist in a strange tale that has gained a flurry of media attention since Quadriga announced in January that CEO Gerald Cotten had died. The news of the death, which came a full month after Cotten reportedly died in India, came with a statement that only Cotten possessed the private keys to access large reserves of customer cryptocurrency—implying the funds were now gone forever. While this would seem a strange move for the company to only have one person who can access all of those funds, it is important that a full investigation is launched to answer all of those questions.
Quadriga’s explanation, which was akin to a bank saying it had misplaced most of its money, drew immediate scrutiny from the media and on sites like Reddit, where some users have questioned if Cotten had faked his death.
In response, Kraken has announced a $100,000 reward for information on what happened to the missing funds. Powell said the decision to post the reward is partly to help Kraken customers who lost funds on Quadriga, and also because the debacle reflects poorly on the cryptocurrency industry. Powell also believes the FBI and RCMP could learn more about what took place by issuing subpoenas to other crypto exchanges, which reportedly received funds from Quadriga at the time it was imploding.
Powell said he did not speak with law enforcement agencies directly but learned of their involvement from Kraken’s compliance team. The scope of any FBI or RCMP inquiry into Quadriga could not be determined. In response to questions from Fortune, both law enforcement agencies said they do not confirm or deny the existence of ongoing investigations.
Quadriga has also made a number of other unusual decisions related to its business practice and corporate structure since its inception. (Journalist Amy Castor has created a full timeline of notable Quadriga events).
All of this will likely provide fodder for any formal criminal investigation. In the meantime, others in the cryptocurrency have been performing forensic examinations of their own. These include Coinbase, whose CEO Brian Armstrong recently concluded that Quadriga suffered a “multimillion dollar bug” in 2017, which put the company in a financial hole. Armstrong speculated on Twitter that Quadriga executives may have tried to trade their way out of the predicament and then used Cotten’s death as a pretext to pull the plug on the operation.
While there is no persuasive evidence Cotten faked his death, it is unclear whether anyone at a Nova Scotia funeral home that handled his service saw his remains. The funeral home, JA Snow, issued a “statement of death” but Kortney Adams, an executive with the association that oversees funeral homes in the province, told Fortune that such statements can be issued on the basis of a foreign death certificate. Media representatives for the corporation that owns JA Snow did not respond to two requests for comment.
As for what will happen next, Powell says he believes the full story has yet to be told about what happened to the missing Quadriga funds.
“I you think you’ve got to get the family and staff and shareholders in a room for a few hours of interrogation to get to the bottom of what’s going on,” he said.