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Quadriga Crypto Mystery Deepens With ‘Cold Wallets’ Found Empty (bloomberg.com)
156 points by dclusin on Mar 2, 2019 | hide | past | web | favorite | 104 comments

I’m willing to wager a decent sum of money that Gerald Cotten is not actually dead, but has rather absconded with all of Quadriga’s holdings, and is currently in hiding waiting for the buzz to die down.

I also think he's probably not dead, but I don't think he absconded with the holdings. I think it's a slightly different situation: there aren't any significant holdings left, and haven't been for a while. I think he already spent/lost almost everything they had, expecting that crypto would go up and everything would work out. Then it went down and stayed down, his plans blew up, and he knew he was screwed and could never pay the users back.

That is, I don't think it's an exit scam, I think it's a desperate attempt to hide a massive failure in running the exchange. The "we can't access the cold wallets any more" was intended to be a believable excuse that would explain why they couldn't return people's money.

My belief is in line with the gp post and not yours for the reason that it's hard to hide $250M of spending (unless it was all in financial instruments that went to nil, which is less likely than buying cars and the like).

In any case these schemes are hard enough to pull off that eventually I imagine we'll find out. Though $250M is right in the valley of interest to the cops: small scale (<$1M and <$10M) and very large scale (Madeoff, Stanford) both of which get press.

If they took the customer funds and invested them straight into crypto when it was peaking, thinking it was going to continue up, they would have lost a LOT of that money.

On top of that, the Canadian government locked up a portion of their funds right around the time they started to experience withdrawal problems.

Makes sense to me.

He would be down about 90%, unless he went to bitmex and lost it all on terrible leveraged trades. He prolly swapped to Monero or something like that

> and invested them straight into crypto when it was peaking

...then compound those losses by taking on a series of ever more risky bets in an attempt to win it back. At least that's the usual way of how gambling ruins people.

I think it's very likely for financial instruments to go to nil if you're using leverage or investing in very speculative crypto.

It's worth $250M now, but if he's been stealing from his customers, it could have been worth a lot less than that when he stole it. He might have even "borrowed" some to cover some minor emergency, then bought back in when crypto was high, and now he's massively in the hole.

The eternal bitcoin question: malice or incompetence?

Considering the whole ecosystem is a rich tapestry of scammers scamming scammers.... the answer to your question is "yes".

Never attribute to bitcoin that which is adequately explained by stupidity.

Probably a some mixture of both. Or at least reckless disregard.

Well && is also possible instead of ||

Ah, of course - what if he stole the cryptocurrency then accidentally died while being the sole holder of the passwords? Oh well, unrecoverability is a feature, as people keep reminding us.

Or maybe he stole the funds dreaming to make more, but only to get crushed as the market crashed, and now went into the hiding, as an earlier poster suggested. It's also possible that he just absconded with all the money though.

This is pretty much what the article tells us, in more general terms:

"a sixth appears to have been used to receive Bitcoin from another cryptocurrency exchange"

Customers doesn't directly transfer funds to cold wallets (if they were they would be much easier to identify) and there's very little other reason to intermingle customer funds with proceeds from trading on other exchanges.

Wouldn't the public transaction records on the cold wallet addresses confirm or deny this (plausible) hypothesis?

Isn't the simplest explanation that agrees with the evidence that he just died?

I’m not sure that Occam’s Razor applies when the simplest explanation doesn’t fit all of the facts. It may still turn out to be true that he’s just dead, but that still leaves the question of the empty wallets, convenient timing, where he died, and his remains. If we accept his death, we need to make some more assumptions about the disposition of the coins, but if he faked his death we need no further assumptions. In addition faking your own death in this context isn’t exactly unheard of, and he couldn’t have picked a bigger haystack to get lost in.

The Globe and Mail flew reporters out to India to chat to the doctors and hospital and it seems he did die - https://outline.com/MS67gd

In further goings on it seems:

>The co-founder of troubled cryptocurrency exchange QuadrigaCX is a convicted felon who served time in the United States for his role in an online identity-theft ring

'Michael Patryn', who changed his name and had a nose job https://outline.com/TdWDgM

My guess is Cotten died and the latter is trying to keep the money

>That Mr. Cotten did indeed die is a certainty among police and medical professionals in India, and The Globe reviewed hotel, hospital and embalming records that give no suggestion of anything abnormal. Each record contains images of Mr. Cotten’s passport. Jayant Sharma, the doctor who treated him and produced a medical report about his death, confirmed that the man he saw matched photos of Mr. Cotten.

It seems like they saw apparently valid records and a doctor confirmed that he witnessed Cotten die. That doesn't seem especially compelling - what else would the doctor say? "No, I lied and forged his death certificates in exchange for money. Please end my medical career and send me to prison."

> That doesn't seem especially compelling

What is compelling is that the 5-star hotel where Cotton and his wife were staying, the hospital where he was treated, 2 members of the police department that reviewed the case, and the mortuary where he was embalmed, all confirm Cotton's death.

That would be a pretty elaborate staged death -- not impossible, but still the evidence provided in the article clearly points to Cotton having died suddenly and unexpectedly in India.

I'm not sure why you think the only option here is that the doctor was in on it. He could have treated a man with fake papers identifying him as Mr. Cotten. By asking the doctor to compare with known-valid photos you can eliminate the possibility that the doctor was unintentionally mistaken about the identity of the man he treated.

> He could have treated a man with fake papers identifying him as Mr. Cotten

So what you're saying is that this "Mr. Cotten" (almost certainly not Indian given the surname), magically appears on death's doorstep at the hospital and promptly dies the next day.

It's so far outside the realm of possiblity, but perhaps Cotton and his wife went to a local cafe frequented by tourists; found a similarly baby faced looking Northern European male with light colored hair and blue eyes; offered him a large sum of cash to "drink this potion that will make you temporarily ill, but only for 24 hours, trust us". Together they walk to the local fake ID shop and do the necessary; then "Cotton" and his "wife" check in at the 5-star hotel and proceed with the plan (drink potion, get sick, go to hospital, but oh noes, "Cotton" dies!).

The real Cotton then visits a local plastic surgeon to get that Brad Pitt look he's always wanted, and slips off to a remote tropical island to lay low until his wife can extricate herself from all the unwanted attention she's getting back home -- when the dust settles she rejoins him in their happily ever after, lifestyles of the rich but not famous, world travels.

...More likely, Cotton is simply stone cold dead.

You misunderstand me. I agree Cotton is almost certainly dead.

I was responding to the statement that questioning the doctor was essentially useless when looking into the possiblity that Cotton faked his death, as either he did indeed die or the doctor was part of the scheme. I was pointing out that there is value in talking to the doctor, as there are possiblities that don't require the doctor to be complicit.

If you've decided investigating the matter is worth your time, you may as well do it properly is all. Doesn't mean I think it's what likely happened.

> The co-founder of troubled cryptocurrency exchange QuadrigaCX is a convicted felon

All kinds of folks living at the top of the crypto pyramid have a rich checkered past. Look at esteemed former US citizen Roger Ver--convicted felon for mailing explosives. Then you've got Charlie Shrem, a convicted felon who was helping launder money. You've got Mark Karpeles, who was convicted in Japan for all kinds of shit. Lets not forget bitcoin developer Luke Jr -- who is a rather.... interesting.... fellow.

Name "spokesperson" for bitcoin and they'll have a rather sketchy history. I cannot name a single person at the top of the bitcoin food chain that is a "normal person".

> Name "spokesperson" for bitcoin and they'll have a rather sketchy history. I cannot name a single person at the top of the bitcoin food chain that is a "normal person".

I'll bite. What's the dirt on Andreas Antonopoulos?

As much as we all like him, I don't think he is at the top of the bitcoin food chain.

Though I don't agree that there is no "normal person". Look at everyone at Blockstream (including Adam Back), people behind Ethereum, most old core devs (Gavin, Mike, etc).

Keep in mind that Bitcoin is very much cypherpunk (especially in the early days before 2013): even Neo from the Matrix was a criminal before he got plugged out. Building a new wild west of digital money is of course going to attract certain type of people.

That doesn't mean it's a scam. The US we know today was build on top of the "new frontier", and not all people were as clean as a whistle back then. The current trends in consumer tech come from Apple, a company that started with a system to hack long distance call infrastructure (blue box).

Reread the first sentence I quoted from spookthesunset. Surely Andreas is a "spokesperson," insofar as Bitcoin has any -- I can find examples of popular media calling him a "Bitcoin Evangelist," plenty of interviews with mainstream news, etc. "Top of the foodchain" is a hard to pin down moving goalpost -- only one person is at the top of the foodchain, so anyone I can name won't count if you can find a single other person higher than them by any metric.

I'm not disagreeing with your more constrained claimed regarding Bitcoin and criminality, it was the broad claim of spookthesunset that I found ridiculous (which you seem to as well, perhaps for slightly different reasons -- I didn't really even want to poke at the term "normal person," given that the sort of people who work on cryptographic-Rube-Goldberg-machines aren't exactly normal by all standards, and that's okay, it's just a lot to unpack and not what spookthesunset was really getting at).

In retrospect, I do feel like I should have quoted less from spookthesunset.

Update - I listened to Kraken's 'podcast' https://www.youtube.com/watch?v=QB0OQae4fWo and they think the most likely is Quadriga lost some ETH, gambled to make it up, lost / stole money in the previous year, then Cotten dying was a coincidence - the money was already missing.

I read this article. It’s certainly possible. Did Michael/Omar travel to India with Cotten on the trip that Cotten died?

> Did Michael/Omar travel to India with Cotten on the trip that Cotten died?

Given that Cotton and his wife were in India largely for their honeymoon (and secondarily to celebrate the opening of the orphange they in part funded), it's highly unlikely that his former business associate would have traveled to India with them. If you read the 2nd linked article Patryn claims that he left the company around 2016 after a falling out.

I smelled an odor when I first read about the 'orphanage'. Awww, how nice. Today I read the gift's details, and the odor's stronger.

"Mr. Cotten’s money, however, did not buy an orphanage. It bought materials, but Mr. Cherukupalli had to arrange the construction himself. And the materials were insufficient – there was enough for walls and furnishings, but not enough.... Mr. Cherukupalli began to accumulate more debt as he secured labour and additional materials."

Whoa I didn’t catch this. Thanks for posting it.

This theory, although fantastical, appears to fall in line with what little is known about Cotten. The kind of person to run a quarter-billion dollar operation solely from their laptop, I would think is certainly liable to pull a stunt like this. What's more interesting, however, is that the converse situation is equally likely: that the supposed ignorance of Cotten played up in the reporting of this story by the media plays absolutely in his favor. Would you trade appearing a fool to "get away with" something like this?

If I were to have unrestricted access to $250M and woke up on the wrong side of the bed one day (or just a bad day in traffic, even) it would take little to flip a switch in my head and think, to Hell with all this, let's skedaddle! However, I am way too much of a paranoiac to do this without absolutely ruining my QOL after the fact, hah.

I suppose situations like this is why we have the Two-man Rule for nuclear launches, &c. Keep those delusions in check!

”Two-man Rule for nuclear launches”.

You would think, right?

The two-man rule only applies to the launch officers, not to the launch authority (president or his successor).

It's actually not a bad plan. I was sure someone would murder Karpeles, or that he would be rotting in jail forever. Neither happened, and most regular folks have no idea who he is. I believe 10 years is the worst he's potentially facing.

His personal bitcoin holdings have appreciated substantially in the time since Mt. Gox imploded too.

I suspect Carpeles made a deal with a group in Japan who are keeping him safe for some exorbitant sum of money.

They made him an offer he couldn't refuse?

Thus both sides benefit from the trade.

Same here.

Most suspicious element of the whole case was the claim that he died from Crohn's disease (a condition that has a 3% mortality rate) and the lack of a body. WHERE IS THE BODY? I call b.s. Cotten is alive

Using ‘a 3% mortality rate’ is not a very accurate way of conveying the burden of disease of a chronic condition such as crohns. People can be fine for ages, have stable disease, then experience a flare up, and if they have a perforation and ignore the symptoms, or are unable to access top line medical care (both likely in this situation) then death within 1-2 days is 100% possible.

Crohn's plus acute gastroenteritis (food poisoning). Delhi Belly is ubiquitous in India and can get pretty gnarly: my wife got dysentery on her first visit, and I'm not sure what would have happened without prompt diagnosis and antibiotics.

I've never heard of receiving antibiotics for dysentery?

I've been to India numerous times, and have had dysentery a few times. Once was pretty bad, essentially rendering me bed (and toilet) - ridden for a couple of days. Never once would I have considered seeking medical attention for it. Unless you're vulnerable for some reason, I'm not sure anything can really be done about it.

Antibiotics for the treatment of travelers diarrhea is very common. When I first had it in Chennai (and was scheduled to fly home the next day), a quick chat with a doctor and a home delivery from the pharmacy cleared it right up.

Many travelers in remote locations carry the antibiotics with them, just in case. I'm writing this from remote Thailand; in the bottom of my first-aid kit is a small bag with Ofloxacin, Imodium, and oral-rehydration salts - just in case.

> in the bottom of my first-aid kit is a small bag with Ofloxacin, Imodium, and oral-rehydration salts - just in case

Imodium I get, but I've honestly never heard of carring antibiotics around while travelling, and I've travelled a good portion of the world. Antibiotics are controlled in many (most?) countries too, so here in the UK I couldn't do this even if I wanted to (I don't)

> so here in the UK I couldn't do this even if I wanted to

Mmm, I think the originating country of the traveller has a lot to do with it. From the US, I wouldn't guess it's particularly common, but it's not unheard of [1].

Can certainly understand your hesitancy. I hope to return with them unopened and unused. Resistance aside, the risk of C. difficile among others is a serious trade off.

In my case, I have enough known antibiotic allergies that a remote Dr might have problems prescribing around them.

[1] https://wwwnc.cdc.gov/travel/page/pack-smart

The most common cause of traveler’s diarrhea is E.Coli, and antibiotics are quite helpful. Many doctors will Rx them if you’re a frequent traveler to areas with known outbreaks and sketchy quality control on their pharmaceuticals.

Bacillary dysentery is common in India, and her case was extreme. Basically, the infection reached the stage where her intestinal lining was visibly sloughing off, and she told me later it was more painful than unanesthesized childbirth.


In any case, she was prescribed a single dose of a large pill for treating both amoebic and bacillary dysentery, so we're still not sure which one it was, but she was back up on her feet less than a day later.

Obligatory: https://knowyourmeme.com/memes/you-have-died-of-dysentery


from the Globe article

>[Cotten's wife with the body] landed in Toronto and flew back to Halifax on Dec. 11, where a funeral service was held on Dec. 14.

Then apparently cremated in Halifax...

> 3% mortality rate

Actually no one knows the lifetime and annual mortality rates very well:


I guess you could think maybe he went to India for some off the books risky surgery for his Crohn's and died on the table. Not sure if that's less believable than the theory he's still alive though.

He supposedly died in a region rife with fake death schemes.


So how do you cash $250M in crypto?

Very, very slowly.

“boating accident”

If you fancy a challenge:

>Crypto exchange Kraken is offering up to $100,000 to anyone who can help solve this year’s biggest blockchain mystery: what happened to QuadrigaCX’s coins? (https://www.coindesk.com/kraken-exchange-offers-100k-reward-...)

For a tech touted to be a complete and indisputable record of financial transactions it sure seems like a lot of cash has disappeared within it.

I don't claim to know anything about blockchain tech but I have been exposed to the hype around it and the mystery for me is why anyone wouldn't have cashed out long ago.

The transactions are recorded on the blockchain. However, like USD money laundering, there are techniques for concealing the overall cash flow in order to make forensic analysis difficult. Also, once coins have been deposited on an exchange, there's no way to know (without the exchange's assistance) what account on the exchange those coins were assigned to, and whether or not that account sold the coins and cashed out.

Bitcoin is not an exchange. That's like saying the economy is screwed up because a company went bankrupt.

Remember folks, Bitcoin can never fail. It can only be failed!

I just “cashed out” the joke £50 i “invested” in Btc a couple of years ago. They are now worth £18.

I expect the real sharks have cashed out a long time ago.

If you held it for a "couple" years then you should still be ahead, definitely not a >60% loss:


Maybe dog years, or some unusual form of £ that has appreciated a lot relative to popular currencies (conventional and crypto) in the meantime? Or 60£ in an active investment between cryptos, occasionally taking on a little loss+fees?

I was originally planning to end this post with "or just making up some numbers", but since GP was writing of a joke investment, active gambling seems to be a reasonable assumption. And putting in 50£ in a toy account (and never extending it with fresh money), leaving with 18 after years, that also doesn't seem like an unreasonable thing to do. That's lower stakes than meeting for an amicable 2£ per player poker night once a month. If the stated goal of a joke investment is a dividend in entertainment, then passive is a terrible investment strategy.

I suppose the ironic thing is a passive investment should be worth triple what it was 2 years ago. The bubble was quick, and I suspect “a joke investment a couple years ago” is a way to rationalize the loss from FOMOing in at the top about 15 months ago.

I honestly can’t remember the exact time (at my age, one year more or less makes little difference) - it was when Revolut added support for crypto currencies. I exchanged £50 to btc to see whether it actually worked and if it made any sense. Not touched it since. I cashed out last week after it came out that Revolut is a scumbag company exploiting their workers.

I cashed out around $1000 USD for about $6000 3 months ago... crypto's just chilling recently, we'll see if there's another price kickoff.

hype is usually not the greatest source of accurate information.

I agree. I didn't seek it though, I was barraged with it.

> Quadriga’s platform data is stored on the cloud with Amazon.com’s Amazon Web Services, or AWS. While Jennifer Robertson, Cotten’s widow, has asked for access to the data, she has been denied because it was in his name rather than registered under the company. Ernst & Young has requested the court grant an order authorizing access.

...is she not his heir? What's happening there?

Someone claims to have found a bunch of their ETH stored at other exchanges -> https://blog.zerononcense.com/2019/02/28/quadrigacx-ethereum...

I am probably alone in this, but...

Yes, I lost $15,000 — but if you’re going to lose money on a budgeted, high risk investment, it’s great to do so embroiled in the strangest of human/technical dramas. I am loving it.

Same for me. Lost less than you, but I was almost laughing when I heard the news. Maybe we should crowdsource a movie to regain the money lost. That's quite a plot we have here.

Quadriga Crypto: The Exchange That Never Happened.

Just take the IRS writeoff for your $25,000.

The IRS will accept it since the company is bankrupt.

You really need to talk to a professional about documenting your $35,000 loss. The IRS gets very nasty about stuff the looks out of line with their expectations.

He's right /u/goodroot, the $45,000 writeoff should be done quickly so it's counted in the bankruptcy filings.

Edit: We're all joking, but you should tax writeoff the stuff. You can't exactly exercise your losses, so this will be game over. Be aware this makes you illegible for future bankruptcy proceeding.

I reckon there are ways you could get a lot more embroiled than that for fifteen large.

I hope you have money for the popcorn. Most people in the USA and the world do not have $15000 so you ain't no worse off in the bigger scheme of things.

> Quadriga was primarily run by Cotten, using his laptop

A quarter of a billion dollars...

Surely you're not implying that there should be some sort of ... regulation or authority governing financial transactions at that scale?

Especially not for crypto.

Given crypto's history, I have no idea why anyone would even consider such a thing.

A notable reason for this sort of thing happening is that the price increased. Solutions which are obviously just toys very quickly grow into problems without you having to do anything.

Cryptocurrency’s most realistic use case: rapidly educating libertarians on why financial regulation exists.

In theory yes, but in practice you just get a demonstration of Festinger’s observations of cogntiive dissonance. When the the flood doesn’t arrive at midnight, you’d expect people to walk out, but most just decide they for the timing wrong and wait for the next one.


Regarding Cotton faking his own death, see first link in this HN comment [1]

Seems highly improbable that his death was staged, there would have had to have been several separate organizations all in on it -- if the reporting is accurate, he's dead, the mystery is where is the $200+ million.

[1] https://news.ycombinator.com/item?id=19291712

So, has anyone attempted to crowdsource-track where the money actually went? All bitcoin transactions are public, after all; getting a large enough number of people to say "I received transaction X from/to Quadriga" should highlight where the central wallet was?

Alternatively, do we know what happened to the real money bank accounts of Quadriga?

For a loss of this scale, you'd think the authorities would start looking into Cotten's communication prior to all of this. I would imagine the things he spoke about with others would provide some clues.

> you'd think the authorities would start looking into Cotten's communication prior to all of this.

The irony is many of the people into bitcoin are the kind of people who think tax is theft and the government should get out of everything in their life.

... right up until they suffer a personal financial loss. Then it is up to the government to make them whole....

> ... right up until they suffer a personal financial loss. Then it is up to the government to make them whole....

I'm very much not a libertarian (or anarchist, or anything in that vicinity) but this is unfair. We all have to work within the existing structures of power; we can't just pretend that things are currently working the way they would in our utopia.


The coins themselves can be tracked on the blockchain, but once they're deposited on an exchange, the coins join a general pool and accounting external to the blockchain (such as what account on the exchange was credited for a coin's deposit, whether or not the coins were sold, and what amount of cash was withdrawn) becomes relevant.

However, it's totally possible for an exchange to periodically prove, or at least persuasively demonstrate, how much money they have, by proving they have the private keys for wallets worth a certain amount.

Proving they don't have more obligations is harder, obviously, but you can prove you haven't lost all your deposits if you want.

For those interested, here's an example of such a Proof of Liabilities implementation [1] with previous HN discussion [2].

[1] https://github.com/olalonde/proof-of-liabilities

[2] https://news.ycombinator.com/item?id=7277865

If you have a critique to make, then make it. These kinds of comments all over every blockchain-related posts aren't really advancing any discussion.

Let me start: why do you want blockchain tech to go away? And if it goes away, do you have a different suggestion for people who find central banking to be unjust?

There isn't much to discuss. The whole ecosystem is rotten from the core. It is nothing but scammers scamming scammers the whole way down.

> why do you want blockchain tech to go away?

Because it pisses away small nations worth of non renewable energy in order for a few people to profit off a bunch of starry eyed naive suckers.

> And if it goes away, do you have a different suggestion for people who find central banking to be unjust?

Yes. Go get an education and learn basic finance, economics, and monetary policy. When you are done with that, go out and get more education of politics, sociology, marketing and computer science.

> There isn't much to discuss. The whole ecosystem is rotten from the core. It is nothing but scammers scamming scammers the whole way down.

Which blockchain-related conferences did you attend in the past year? Can you tell me specifically where I can physically find these scammers?

I attended a dozen or more of the most significant events, including ZKSummit, ETHBerlin, and DevCon and I must say that I did not experience anything like what you're saying.

> Yes. Go get an education and learn basic finance, economics, and monetary policy. When you are done with that, go out and get more education of politics, sociology, marketing and computer science.

Why are you attacking me personally?

FWIW, I have a degree in political science from one of the best public polysci programs in the USA. And I think that my work in software development / python / crypto engineering speaks for itself. But if that's not the case for you, and you want more traditional compsci chops, there's no shortage in the blockchain field.

> Because it pisses away small nations worth of non renewable energy in order for a few people to profit off a bunch of starry eyed naive suckers.

I have concerns about the sustainability of PoW; we all do. But looking at the warfare, imperialism, and environmental parasitism that state-controlled monetary policy and its "growth" has brought us, I think it's not so bad.

It seems likely that a serious PoS implementation is coming soon with Serenity/Casper. What do you think about that development?

I recently demoed the latest NuCypher version at ETHDenver. [0] It's not clear to us how we'd do what we're doing without the decentralized incentive structure of the blockchain. Can you suggest an alternative?

0: https://www.youtube.com/watch?v=om0tew-Z4gE

lol at people who give strangers money for a promise to return

Investing in stock and bond markets is "giving money to strangers for a promise of a return".

At this point it's propped up by buybacks and central banks that can print as much as they want.

We'll see how it works out.

You wonder won crypto hasn’t caught o

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