OSC publishes investigative report of QuadrigaCX

For Immediate Release Enforcement OSC

TORONTO - A Panel of the Ontario Securities Commission (OSC) has authorized the publication of an investigative report, in the form of a review by OSC Staff, of the crypto asset trading platform QuadrigaCX (Quadriga).

The collapse of Quadriga in 2019 caused massive losses for 76,000 investors from Canada and around the world, who collectively lost at least $169 million. Approximately 40 per cent of these investors were Ontarians.

The report published today outlines the events from Quadriga’s inception to its eventual collapse, with a focus on how the platform was run, what caused its collapse, and what happened to clients’ assets. The report also discusses how, in Staff’s assessment, the Quadriga platform involved trading in securities or derivatives.

“While public release of an investigative report is rare, we believe the tens of thousands of Ontarians who entrusted Quadriga with their money and crypto assets deserve to know what happened,” said Jeff Kehoe, Director of the Enforcement Branch at the OSC. “Our aim in making this information public is also to prevent this type of situation from recurring.”

Given the magnitude of Quadriga’s downfall, the harm done to Ontarians, and the novel issues surrounding crypto asset trading platforms, the OSC announced in February 2019 that it would review this matter. Over a 10-month period, a multi-disciplinary team under the direction of OSC Enforcement Staff analyzed trading and blockchain data, interviewed key witnesses, and collaborated with numerous regulatory bodies in Canada and abroad. As Quadriga did not maintain proper financial records, Staff analyzed records from third-party payment processors and banks to reconstruct the platform’s affairs. To determine how Quadriga’s co-founder and CEO Gerald Cotten (Cotten) managed client assets, Staff analyzed platform data relating to more than 368,000 client accounts and over six million individual transactions, as well as thousands of Quadriga-related emails. Staff also obtained and analyzed records from other crypto asset trading platforms.
Staff determined that Quadriga collapsed due to a fraud committed by Cotten. Cotten opened accounts under aliases and credited himself with fictitious currency and crypto asset balances, which he traded with unsuspecting Quadriga clients. Cotten sustained real losses when the price of crypto assets changed, thereby creating a shortfall in assets available to satisfy client withdrawals. Cotten covered this shortfall with other clients’ deposits – in effect, operating a Ponzi scheme. Staff calculated that the bulk of the $169 million in client losses – approximately $115 million – arose from Cotten’s fraudulent trading.

Staff also determined that Cotten misappropriated millions in client assets to fund his lavish lifestyle.

OSC Staff would likely have pursued an enforcement action against Cotten and Quadriga. However, this is not practical given that Cotten is deceased and Quadriga is bankrupt, with its assets subject to a court-supervised distribution process.

Given this unique situation, Staff sought and obtained approval from a Panel of the Commission, under subsection 17(1) of the Ontario Securities Act, to publish a report, written by Staff, containing information that would otherwise be protected by confidentiality restrictions. The Panel approved publication of the report as written by Staff. The findings and views in the report have not been tested before a Panel of the Commission or a court.

Crypto asset trading platforms are an emerging area operating in an evolving regulatory landscape. Bad actors can take advantage of these circumstances to defraud investors. Regulatory oversight plays an important role in investor protection, including fraud detection and prevention.

Platform operators should be aware that securities legislation may apply to their business, and where applicable, take appropriate steps to comply with Ontario securities law. For guidance, platform operators should consult CSA Staff Notice 21-327 Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets.

“The information presented in this report highlights the unique risks that can arise when using crypto asset trading platforms,” added Jeff Kehoe. “These risks are magnified when platforms trading securities and derivatives do not register with regulators and do not disclose critical information about their practices.”

There is a clear difference between platforms that comply with Ontario securities law and are transparent about their operations, and those that do neither. The OSC remains committed to fostering innovation and working with crypto asset trading platforms that comply with Ontario securities law. The OSC has an Office of Economic Growth and Innovation for this express purpose.

What investors need to know:

  • In Canada, many crypto asset trading platforms are not registered with securities regulators and have taken the position that they are not required to register. Important safeguards typically in place at firms regulated by securities regulators may not be in place.

  • Be aware that platforms may maintain custody and control of your assets. This means you depend on the platform to deliver your assets to you when you request them. There is also no guarantee that the platform will have enough cash on hand to manage your withdrawal requests.

  • Platforms may not disclose important information, such as whether they maintain custody and control of your assets, and how they store and handle your assets. You may not be aware that a platform’s practices are exposing your assets to risks of loss, theft or misuse.

  • Before entrusting your assets to a crypto asset trading platform, do your research and watch for signs of potential fraud. Take steps to learn about the platform’s operations and approach to risk management. If the platform does not disclose this important information, consider this a red flag.


The OSC thanks the following regulatory bodies for their assistance with the investigation of this matter: The British Columbia Securities Commission, the Autorité des marchés financiers (Québec), the Nova Scotia Securities Commission, the New Brunswick Financial and Consumer Services Commission, the U.S. Commodity Futures Trading Commission, the U.K. Financial Conduct Authority, the Swiss Financial Market Supervisory Authority, the Monetary Authority of Singapore and the British Virgin Islands Financial Services Commission.

The mandate of the OSC is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair and efficient capital markets and confidence in the capital markets, and to contribute to the stability of the financial system and the reduction of systemic risk.  Investors are urged to check the registration of any persons or company offering an investment opportunity and to review the OSC investor materials available at http://www.osc.gov.on.ca.



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