With the increase in the use of blockchain technology, its dark side is also being revealed. Recently one such case has come into the limelight where experts are to check a few transactions. Blockchain forensics specialists have been hired to investigate blockchain transactions in the QuadrigaCX case. The lawyers who are representing the creditors of the collapsed exchange have hired such experts to help them with the investigation process. The actions in this direction are already taken, and more explanations are expected in a short span now.
The crypto exchange QuadrigaCX is involved in controversy after the death of Gerald Cotton in 2018, who was the founder. Unfortunately for the investors, he was the sole person who had access to the cold wallet holdings of the exchange and users have lost close to $190 million in assets in early 2019. This incident had aroused a lot of anger among users, and some of the users also took the help of the law to recover their loss as it led to undervaluation tremendously.
The creditors had hired a Canadian law firm to deal with the defunct crypto exchange, and the law firm has now hired a consultancy firm, Kroll, to help them with the investigation. Miller Thomson said in a notice to the creditors that Kroll will now be working in collaboration with Confirm which is its strategic partner as they have specialization in blockchain forensics and anti-money laundering compliance.
Coinfirm is a big name in the crypto industry as it has developed a blockchain analytics engine designed for tracing crypto assets and recovery of assets. Apart from that, it can also help in fraud investigations, and that is the reason why Kroll has partnered with this company for its investigation into the QuadrigaCX case. Coinfirm also specializes in data analytics that will be very useful in such cases.
Coinfirm and Kroll will now jointly work on the case and analyze a subset of transaction data. The update from Miller Thomson did not reveal further details about the involvement of Kroll as the law enforcement agencies are also involved in the investigation, and the transactions are sensitive in nature. In this regard, they will not announce further details about the involvement of Kroll in the investigation process.
Miller Thomson, along with an appointed Official Committee of affected users and inspectors of QuadrigaCX bankruptcy estate have jointly hired Kroll for a fee that is capped at $50000. However, Kroll has a contractual indemnity of up to $150000.
Apart from that, the update from Miller Thomson also revealed that the information about controversial Crypto Capital which provided services to QuadrigaCX had been provided to Quadriga’s monitor Ernst and Young. Crypto Capital which worked as a payments processor, has a controversial past and it is based in Panama. It provided services to QuadrigaCX before the exchange collapsed due to various reasons.
According to Miller Thomson, there are no sufficient proofs with the help of which it can be established that Crypto Capital had any funds to Quadriga while it went for bankruptcy. However, he added that Ernst and Young will check all possible recovery avenues present to Quadriga estate as and when any new information arises about the matter.
This is the biggest problem associated with cryptocurrency exchanges, and they lack the proper regulation that is usually associated with the stock market and commodity markets around the world. Many novice investors are not able to understand all the risks associated with trading with such exchanges, and there is no guarantee offered by the government or other legal, financial institutions to protect them from such frauds. The agencies can only initiate an investigation after something has happened, and they are not technically advanced enough to take proactive measures to avoid such incidents in the crypto industry.
The Canada Revenue Agency (CRA) is conducting the audit of tax liabilities of Quadriga’s, and it has still not set a timeline for the completion of the audit process due to disruptions caused by Covid19 pandemic. In this regard, Miller Thomson states that the compensation of creditors will remain a protracted process shortly.
The coronavirus pandemic has affected the financial markets in many ways. On the one hand, the markets have become very volatile due to the fluctuations in the economy. Apart from that, the jobless problems and lack of business are driving the markets in reverse gear. On the other hand, such litigation takes a long time to get settled due to the pandemic. Many courts are not working to their full capacity, and they usually give prominence to very urgent and important cases during such crisis situations. In this case, the court has taken time to get the audit done as it is technically difficult and financial experts are needed in this situation.
Given the complex nature of the cryptocurrency transactions, it may take some more time for the court to handle the audit process and the creditors have no other option but to wait for a few more months till they can expect some relief. However, experts believe that there is no guarantee of creditors getting their due in this situation as the transactions are complex and you cannot blame the promoters for the mess.
In this regard, the help of forensic experts who have expertise in anti-money laundering activities is needed, and the consultancy firm has done the right thing by choosing them in the QuadrigaCX case. They have the technical expertise to handle such cases, and investors can hope for some relief in the future.
This should also be an eye-opener for millions of investors as they have to deal with such problems when the system is not completely regulated. The financial markets regulated by the governments and other agencies rarely have such problems, and it is easy for the investors to get justice even when something goes wrong in that case. However, the crypto industry is still not mature enough to have a regulatory system, and this has led to a lot of loopholes that can be exploited by attackers to swindle money from novice investors.