February 5, 2019
Quadriga Fintech Solutions, a Vancouver, British Columbia-based company that operates an online cryptocurrency exchange platform (the "QCX Platform"), filed for protection under the CCAA on February 5, owing over $260.0MM to certain of its users. The QCX Platform was launched in December 2013 and is used to facilitate the purchase and sale of cryptocurrencies for the company's 363,000 registered users. A user who wants to transfer bitcoin or other cryptocurrency requires a wallet. A wallet has an address to each user and is comparable to a piggybank that is located on a user's phone or computer. Wallets are described as either hot or cold. A hot wallet is located on a server and is used for transactions that require a quicker turnaround. A cold wallet or cold storage is located offline and is a safe space to secure coins. Any coins credited to a user on the platform were stored by Quadriga, either in a hot or cold wallet. Only a minimal amount of coins were kept on the server in a hot wallet. The normal procedure was to move the coins to a cold storage as a way to protect the coins from hacking or other virtual theft. The company cites several factors for its financial difficulties and current liquidity crisis. First, the company notes that it was never able to obtain a corporate bank account because the banks did not want to deal with it because of the cryptocurrency business. The company therefore had to use personal bank accounts and third party payment processors. In January 2018, CIBC froze an account that held approximately $25.7MM being held on Quidriga's behalf. The funds were paid into court and eventually released, but Quadriga has been unable to find a banking institution to accept the bank drafts. More recently, in December 2018, Gerry Cotten, Quadriga's founder and sole officer and director, passed away unexpectedly at the age of 30 while in India. Gerry ran the business through his laptop, which is encrypted and password protected. To date, and despite many expert attempts, no one has been been able to hack into the computer. Of critical concern is that an estimated $180.0MM of coins which Gerry moved to cold storage will essentially be lost, as Gerry alone held the security keys for the location of the cold wallets. The decision to enter bankruptcy protection was made to allow the company breathing room to investigate whatever stores of cryptocurrency may be available and negotiate the bank drafts available to the company. The proceedings will also stay any potential legal actions that users may have commenced had they been unable to access their funds. The company is also exploring the potential sale of its operating platform, which may have significant value and could lead to value being realized for the benefit of the company's creditors. EY was appointed monitor. Counsel is Stikeman Elliot for the monitor and Stewart McKelvey for the company. Several firms are vying for the role of representative counsel for the platform's users.