Quadriga was Canada’s dominant Bitcoin marketplace—but founder Gerald Cotten's unexpected death raises the question: Was Quadriga built to last, or built to self-destruct?
visited Sunnybrook Yachts in the summer of 2017, after the value of Bitcoin had reached an all-time high, having tripled in five months. Sunnybrook is the largest yacht brokerage on Canada’s east coast. Its clients tended to be surgeons and litigators and C-suiters who travel from Toronto and Paris and Hawaii to summer in Nova Scotia; their wives wear silks and Manolos and perfect fingernails that cost $300 yesterday at the salon. The smiling boy stood out.
Cotten returned for lessons the following summer, though not as often. He was busy. Then, in December, Robertson called Sunnybrook to explain that Gerry, while on their honeymoon in Jaipur, had died suddenly. She wanted to sell theWhen national news articles began to appear a month later, they emphasized another detail: Cotten was the only person with the passwords to the accounts holding Quadriga’s funds—cryptocurrency and cash—worth approximately a quarter billion U.S. dollars.
In April 2013, around the time that Cotten appeared in Vancouver, the price of a Bitcoin had risen to $266. But it was not easy to buy or sell if you lacked technological sophistication and considerable patience. Seventy percent of the global Bitcoin trade was conducted through Mt. Gox, a Tokyo-based exchange, and had to be funded by sending a bank wire to Japan.
Cotten’s reputation as a cryptocurrency true believer survived his death on December 9, 2018. Still, the eulogies had a prismatic quality; viewed from an angle they suggested darker possibilities. “He was not an evil dude,” said Freddie Heartline, a founder of the Bitcoin Co-op, when asked about the missing millions. “He was careful and pragmatic.” Another co-op member, Michael Yeung, rejecting the insinuation that Cotten had been out to make a quick buck, said “he was in it for the long haul.
There was no such constraint on the outraged creditors—or the true believers who saw in Quadriga’s collapse an existential threat to cryptocurrency’s integrity at just the moment it had assumed an eggshell veneer of legitimacy. Bitcoin was founded on the principle that no individual or institution should be trusted. Every Bitcoin transaction appears in a public ledger—the blockchain—that can be consulted by anybody with internet access.
A month passed before Robertson announced on Quadriga’s Facebook page that Cotten had died. During that time Quadriga continued to accept new funds but returned none.
The major break in the investigation was not a revelation, exactly, but something that had been hiding in plain sight. It concerned Quadriga’s cofounder. As it turned out, Michael Patryn—as Michael Perklin and nearly everyone in the close-knit Canadian cryptocurrency community had known for years—was not really Michael Patryn. Which meant that Cotten was not really who he said he was either.
Patryn told reporters after Cotten’s death that they had met online over five years ago, but this was about as accurate as calling himself an “adviser” to Quadriga when in fact he had been the cofounder.
“I’m afraid I’m not going to fill this section of the page with the usual bumph about how your returns are made. We do not invest in stocks, bonds, shares, precious metals or antiques. All I will say is that we will generate your return and that we are not what is called a ponzi or pyramid scheme.” On May 24, 2013, federal agents in 17 countries arrested Liberty Reserve’s administrators, shuttering its website and seizing its records and bank accounts. It was the largest online money-laundering case in American history: Liberty Reserve’s 5.5 million user accounts had conducted 78 million transactions worth more than $8 billion.
It was not built, in its early days, to make money. According to Quadriga’s last public filings in 2015, it operated in a deficit. Under the most charitable interpretation of Cotten’s actions, the public bid marks the moment that he decided to go straight.
“There was a high tolerance for risk in the community, especially in 2015,” she says today. “We all want Bitcoin to succeed, and businesses in the Bitcoin industry to succeed, which encourages some level of self-delusion. There was also the fact that these were Canadian people, Canadian companies. We didn’t want to cast doubt on our own scene. While I warned people privately, I wasn’t shouting it from the rooftops. I don’t get to hold myself blameless.
Still Cotten was not directly responsible for all of his troubles. Because Canadian banks refused to accept cryptocurrency businesses as clients, Quadriga had to rely on third-party processors, which levied outrageous fees and in some cases stole funds outright. One Quadriga contractor claims today that the payment processor WB21, now the subject of federal lawsuits in the United States, Switzerland, and the United Kingdom, stole $14 million, and that another processor stole $5.8 million.
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