Court monitor determines QuadrigaCX’s inadvertent transfer due to ‘platform setting error’

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The court-appointed monitor overseeing the search for the roughly $260 million owed to clients of the embattled QuadrigaCX cryptocurrency exchange says the bitcoin transfer it “inadvertently” made this month was due to a “platform setting error” that prompted the automatic transaction.

Ernst & Young also said in its second report that it has confirmed that the insolvent company’s cold-storage, or offline wallets, continue to hold approximately 104 bitcoins. It had said that 103 bitcoins had been transferred out on Feb. 6.

“The Monitor understands from Management that the inadvertent transfer occurred due to a platform setting error by the Applicants that resulted in bitcoin being automatically transferred to the Quadriga cold wallets,” it said in the report.

“The Monitor has viewed the wallet addresses that received the cryptocurrency as a result of the setting change and has confirmed that the transfers occurred at the time noted by Management.”

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The Vancouver-based exchange was shut down on Jan. 28 after the sudden death of its chief executive and sole director, Gerald Cotten. Roughly $190 million in missing bitcoins and other cryptocurrency is locked in offline digital wallets, also referred to as cold-wallets, as Cotten was the only one who had the encrypted pass codes. In addition, roughly $70 million in cash is owed to roughly 115,000 users of QuadrigaCX, which was once one of Canada’s largest cryptocurrency exchanges.

QuadrigaCX earlier this month was granted creditor protection in a Nova Scotia court, and Ernst & Young was appointed as monitor to oversee the proceedings. During the Feb. 5 initial hearing, QuadrigaCX sought an order to allow the company or the monitor to maintain a cold wallet to hold any cryptocurrency held by QuadrigaCX. The court determined that Ernst & Young would maintain the cold wallet.

But on Feb. 6, Quadriga “inadvertently transferred” certain cryptocurrency into cold wallets that the company is unable to access.

However, Ernst & Young said in its latest report that QuadrigaCX on Feb. 14 transferred bitcoin, litecoin and other cryptocurrencies over to cold-storage, or offline, wallets controlled by the court-appointed monitor.

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The monitor says QuadrigaCX transferred roughly 51.1 bitcoins, 33.3 bitcoin cash, 2,032.7 in bitcoin gold, 822.3 litecoin and 951.5 ether, which will be held pending further order of the court.

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The report also says that the cryptocurrency exchange has “no accessible funds” to fund its creditor protection proceedings and pay creditors other than interim financing provided by Cotten’s widow Jennifer Robertson, who is now a director at Quadriga “which will be exhausted in the near term.”

Ernst & Young says there are three immediate sources of funds available, such as bank drafts and money held by third-party processors, and the company and the monitor are taking steps to facilitate access.