On June 11, the Ontario Securities Commission (OSC) published an investigative report outlining its findings on the collapse of QuadrigaCX that caused investors to lose millions of dollars.
The report, dated as of 11 April 2020, presents the investigative steps taken by OSC staff to determine what caused the platform to collapse including:
Conducting the review with the input of Canadian and foreign regulators as well as key Quadriga partners.
Obtaining records from banks and payment processors to understand Quadriga's handling of fiat currencies (currencies backed by a national government).
Compelling platform data and thousands of Quadriga-related emails from Ernst & Young.
Analyzing blockchain transaction data and obtaining records from several other crypto-asset trading platforms.
Trying unsuccessfully to obtain records from three other crypto asset trading platforms due to jurisdictional hurdles.
Based on the evidence, OSC Staff finds that Quadriga's now deceased founder committed fraud. The report mentioned a number of fraudulent actions that caused the collapse of the company and the loss of 169 million by investors (with the majority of the loss caused by Cotten’s fraudulent trading). The fraudulent elements listed in the report are as follows
Unauthorized trading with client funds
Misappropriation of assets
Absence of registration with a securities regulator
Absence of a proper internal controls system
Lack of disclosure to clients
Poor management of the accounting and financial records
Quadriga provided no information into how clients' assets were being stored, moved and spent
The publication of this investigative report is a rare step taken by OSC and it aims to inform the public to prevent such fraud from occurring.
The regulator took also the opportunity to remind platform operators that depending on their activities they may be obliged to register with the OSC and stress the importance for them to comply with Ontario Securities laws.
The OSC report can be found here: https://www.osc.gov.on.ca/quadrigacxreport/