Lawyer says QuadrigaCX is out of money: 'We don't have anything'
Published Thursday, February 14, 2019 8:21AM AST Last Updated Thursday, February 14, 2019 7:25PM AST
HALIFAX -- Once one of Canada's largest cryptocurrency exchanges, QuadrigaCX has now run out of money.
"As of today, we don't have anything," Maurice Chiasson, a lawyer representing the insolvent Vancouver-based company admitted Thursday in Nova Scotia Supreme Court.
Chiasson said more money was expected to be made available from Halifax resident Jennifer Robertson, the widow of the company's late CEO, Gerald Cotten. She had also previously contributed $150,000 to cover operating costs, recent court documents say.
The company's precarious financial status was revealed as more than a dozen lawyers converged on the Halifax courtroom to make their pitches to represent QuadrigaCX users who are owed $260 million.
In all, three teams of lawyers have applied to the court to represent 115,000 cryptocurrency traders owed $70 million in cash and $190 million in Bitcoins and other digital assets.
Justice Michael Wood said he would issue a written decision within a week.
The law firms selected as so-called representative counsel will work closely with affected QuadrigaCX users, as a court-appointed monitor continues to look for the money they are owed.
The exchange was shut down Jan. 28 following Cotten's sudden death on Dec. 9 while travelling in India. He ran his five-year-old business from his home north of Halifax.
Court documents say the $190 million in missing cryptocurrency is locked in offline digital wallets -- but they are beyond the reach of the company because Cotten was the only person who had the encrypted pass codes.
At one point during Thursday's hearing, a lawyer representing the monitor, Ernst and Young, said lawyers' fees at this stage should be capped at $100,000.
Under a Feb. 5 court order that granted QuadrigaCX protection from its creditors, the company is required to pay all legal fees.
"For us, the issue of cost is important," Chiasson said.
Each of the competing teams of lawyers has representatives from one firm in Toronto and one in Halifax.
The first to file an application was Bennett Jones of Toronto and Halifax-based McInnes Cooper. That team has already signed up 181 users who are owed about $22 million.
McInnes Cooper lawyer Benjamin Durnford said one of the key roles of the representative counsel will be communicating with affected users scattered around the world.
He said many of those users communicate through online chat sites, such as Reddit, where anonymous participants often trade in rumour and innuendo.
Reddit is replete with speculation about what happened to the money and the circumstances surrounding Cotten's death in Jaipur, India. Robertson has said her husband died from complications linked to Crohn's disease.
"This is a case that must be litigated in the courtroom, not the chat room," Durnford said, taking aim at a law firm that has suggested users could be reached through sites like Reddit and Telegram.
Bennett Jones lawyer Raj Sahni also said that was a bad idea.
"The use of chat rooms as a communication forum is inappropriate," he told the court, suggesting these sites are rife with mischief and those promoting their own agendas.
"They are not a secure forum."
The law firms Miller Thomson in Toronto and Cox & Palmer in Halifax represent 252 creditors owed about $15 million.
Cox & Palmer partner Gavin MacDonald said the use of chat rooms was needed to "replace misinformation with fact."
"These chat rooms are a fact -- people are using them extensively," he told the court. "Leaving it alone to fester is ... a bad idea."
Meanwhile, Toronto-based Osler, Hoskin & Harcourt and Halifax-based Patterson Law represent 134 affected users owed about $19 million.
That team told the judge it had an advantage because one of its lawyers is considered an expert in cryptocurrencies.
"We don't need to familiarize ourselves with cryptocurrency," said lawyer Evan Thomas, who specializes in blockchain technologies. "We already have that."
Much of the $70 million in hard currency owed to users is tied up in bank drafts that are being held by nine third-party payment processors that worked with QuadrigaCX.
According to Robertson, one of those processors -- Toronto-based Costodian Inc. -- has five bank drafts worth $25.2 million.
Chiasson said he wants to get the court involved to "bring people to the table."
QuadrigaCX used third-party payment processors because the traditional banking sector remains reluctant to handle revenue from the cryptocurrency industry, which is unregulated in Canada.