It’s quite typical to hear the worlds of cryptocurrencies, NFTs, and the like labeled as “scams” if you spend a lot of time online. While it’s true that the financial landscape is a kind of a wild west – albeit one populated by bored apes and libertarian nightmare ships – crypto aficionados will usually argue that such descriptions are at best exaggerated. However, there are situations when those who label crypto schemes as “scams” are correct. Ask Tong Zou, who lost half a million dollars – his entire life savings – in what authorities later described as “an old-fashioned swindle cloaked in new technology.”
He told Sky News, “It simply makes me more depressed about it.” “I could have put it into real estate.” I had the option of putting it in stocks. “Nothing has been discovered so far.” It’s a pain.” But how did Zou, along with tens of thousands of other cryptocurrency investors, lose so much money?
Gerald Cotten, who died at the age of 30 from Crohn’s disease complications, started it all three years ago. Cotten was the co-founder and CEO of QuadrigaCX, Canada’s largest cryptocurrency exchange, and he had “exclusive responsibility for handling the funds and coins” on the exchange, according to his widow.
QuadrigaCX was obliged to declare that the crypto savings worth more than C$200 million had been lost, possibly permanently, because the information essential to access the financial databases was held on a laptop encrypted by passwords known only to Cotten.
So far, I’ve been unfortunate. The Ontario Securities Commission (OSC), as well as an army of anonymous Twitter, Reddit, Pastebin, and Telegram accounts, began investigating the matter in the months following Cotten’s death and QuadrigaCX’s subsequent bankruptcy. What they discovered was nothing short of colossal fraud.
According to the OSC’s report from 2020, Cotten “managed the business as he saw appropriate, with no proper system of internal oversight or controls, or proper books and records,” and “did not register [QuadrigaCX] with any securities authority.” “Cotten’s capacity to commit a large-scale fraud without being detected was aided by his lack of registration.” “As did Cotten’s lack of internal oversight,” they explained.
In fact, despite appearing to be a 21st-century scam, QuadrigaCX turned out to be nothing more than an old-fashioned Ponzi scheme: Cotten had been taking money from new investors and using it to pay off old investors – all the while keeping a sizable (and misappropriated) cut for himself to fund his lavish lifestyle. That wasn’t all, though. Cotten was also generating dozens of phony accounts packed with false cryptocurrency as early as 2015 to encourage trading on his site.
These accounts, some of which had names like Aretwo Deetwo and Seethree Peaohh, had made hundreds of thousands of deals by the time he died, selling their fraudulent Bitcoin for real money. “I kept asking, ‘Where did my money go?'” – Throughout October, November, and December,” Zou told Sky News. “They kept claiming it was because of the litigation… I had just finished praying. I was hoping it wasn’t a ruse.” “There was nothing I could do at the time.” He said, “There was no method of getting my money back.” “It was practically gone once I deposited it.”
Then Cotten died, amidst escalating legal problems and client complaints about missing or inaccessible monies. But there’s more to the story than meets the eye, because dying would have been the nicest thing that could have happened to him, curiously – weirdly, perhaps. Cotten, if he were still alive, would be in serious danger right now. According to OSC estimates, he owes a total of roughly C$215 million, of which barely a fifth has been recovered thus far.
“These findings would very certainly have resulted in an enforcement action against Cotten and/or Quadriga under normal circumstances,” the agency concluded in its report. “However, given Cotten’s death and Quadriga’s bankruptcy, with its assets subject to a court-supervised distribution process, this is not feasible.”
That’s why, despite testimonials from Cotten’s widow, the hospital where he died, and the funeral parlor where his body was prepped for burial, some individuals believe the crypto conman is still alive. “They [the FBI and RCMP] questioned me around 20 times if he was alive,” a witness familiar with Quadriga’s operations told Vanity Fair. “They always ask that question at the end of our conversations.”
Meanwhile, QCXINT, a Quadriga creditor and cryptocurrency expert, told the magazine that Jennifer Vander Veer, the FBI’s cybercrime division’s senior investigator, told him that the veracity of Cotten’s death is “an open question.” The case has perplexed the authorities, as well as individuals who regarded themselves to be Cotten’s friends and coworkers.
Freddie Heartline, a co-founder of the Bitcoin Co-op, described him as “not an awful man” and “like a light of sunshine,” according to longtime associate Michael Patryn (Patryn would later be outed as convicted thief and fraudster Omar Dhanani by Redditors and journalists.) When his wife learnt about Cotten’s “improper” business methods, she said she was “upset and disappointed.”