According to the Canadian Authorities, the Quadriga exchange's downfall in 2019 was due to its founder Gerald Cotten who ran the exchange like a Ponzi scheme. He was found dead in 2019 which led to a collapse of the exchange as 76,000 investors lost approximately $170 million. Cotten is now being accused to have tried to balance the books by creating fake accounts to trade with its investors.
When Bitcoin plummeted in 2018, the exchange went bankrupt and then Gerald Cotten took money from the new clients and handed to the old ones to appear that the exchange has enough cash to do the withdrawals. The Ontario Securities Commission (OSC) believes this had elements of a Ponzi scheme and contrary to the popular belief, it was the real reason why the exchange collapsed and not because the Quadriga's founder died.
The Quadriga exchange was found guilty in other dishonest involvements too. The exchange never registered with the authorities, ergo, found it easier to commit fraudulent activities. Cotten used to trade the investors money with other exchanges without them having any clue about what is going behind the curtain. He used to their money to live a grand life of his own and this along with trading assets with others exchange is what caused Quadriga to collapse.
There was a theory that he faked his own demise and ran away but now it seems his death wasn't the reason why investors lost money, it was his activities when he was alive. The OSC has decided not to take any action as Cotten is no longer alive and the exchange is bankrupt. However, it will take its remaining funds and distribute it among the bankruptcy court.
The OSC also added that Quadriga was not the only one as there are many exchanges in the country who are running without registering with a securities regulator.
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