Representations of cryptocurrency Bitcoin are seen in this illustration picture taken in Paris, France, March 9, 2024. REUTERS/Benoit Tessier/IllustrationBenoit Tessier/Reuters
British Columbia’s Civil Forfeiture Office still has some unfinished business involving missing assets associated with defunct cryptocurrency exchange QuadrigaCX.
Although former clients of the Vancouver-based company are poised to receive additional payments stemming from the B.C. government’s forfeiture of cash, gold and luxury items, they are also entitled to other restitution involving more than 100 long-lost bitcoins.
Need a refresher on this issue? No problem. I’ll start by recapping the sliver of good news that long-aggrieved victims received on Tuesday, courtesy of The Globe and Mail.
My colleagues Alexandra Posadzki and Joe Castaldo reported that former QuadrigaCX customers will get first dibs on the net proceeds from the eventual sale of items confiscated from Quadriga co-founder and convicted felon Michael Patryn.
QuadrigaCX users could see money from co-founder’s forfeited safety deposit box
The RCMP seized $250,200 in cash, 45 gold bars worth more than $700,000 based on current prices, four luxury watches and other pieces of opulent jewellery from Mr. Patryn’s safety deposit box, which was stored at a Canadian Imperial Bank of Commerce branch in Vancouver.
B.C.’s Civil Forfeiture Office then targeted the items through a legal claim in 2023, alleging the items were ill-gotten gains. It received a default judgment from the province’s highest court this past September.
Civil asset forfeiture is a legal tool that is used by governments to seize property and other assets that are linked to illegal activity.
Confiscation is not predicated on a criminal conviction. Instead of focusing on the suspected perpetrator of a crime, this type of civil action targets the property itself.
The standard of proof for civil forfeiture is “a balance of probabilities” that the property is connected to illegal activity. That is a lower bar than “beyond a reasonable doubt,” which is used in criminal law.
Mr. Patryn initially disputed that the confiscated items were the proceeds of crime, but he later withdrew his response to the province’s claim.
Therefore, the default judgment from the Supreme Court of British Columbia laid the legal groundwork for the seized items to be sold and the net proceeds to be paid to the victims.
Now, let’s get back to the previously mentioned missing bitcoins.
In 2022, QuadrigaCX claimants learned that some 104 bitcoins, ostensibly held in inaccessible virtual wallets, were mysteriously moved in unauthorized transfers.
The development was shocking because bankruptcy trustee Ernst & Young Inc. did not initiate the transfers. In fact, EY had said years earlier that it was unable to access the wallets or the value stored in them.
It was the second instance of suspicious transfers involving those digital assets. In 2019, just a day after receiving creditor protection from a Nova Scotia court, QuadrigaCX mistakenly transferred the 104 bitcoins into cold storage wallets and blamed the error on an inexplicable setting change.
What’s weirder, the only person with the passwords to the wallets was Gerald Cotten, QuadrigaCX’s other founding father, who died in late 2018. But curiously, his death preceded both the 2019 and 2022 transfers of the bitcoins.
“Unfortunately, all we know now is that these transfers are unauthorized,” Magdalena Gronowska, a member of Quadriga’s affected user committee, told The Globe in 2022 about that year’s transfers.
“I am hopeful blockchain tracing will provide more insights and that we are able to track and initiate a recovery of some funds.”
QuadrigaCX claimants deserve an update on that search from the RCMP, EY and law firm Miller Thomson LLP, which represents the exchange’s former clients.
Victims also deserve assurance from the B.C. government that its civil forfeiture office plans to target these missing digital assets, too.
When the unauthorized transfers took place in 2022, the missing bitcoins were worth roughly $2.4-million. These days, those digital assets are worth more than $13-million, even with the cryptocurrency’s recent declines.
That is a big chunk of change for the more than 76,000 former clients, who only received a fraction of what they were owed when QuadrigaCX, formerly Canada’s largest cryptocurrency exchange, collapsed in 2019.
The Ontario Securities Commission concluded that the company imploded because Mr. Cotten operated it like a Ponzi scheme. Not only did he ransack client accounts to fund his posh lifestyle, but he also engaged in fraudulent trading that resulted in steep losses.
Many QuadrigaCX customers were suckered out of their life savings, which is why the issue of restitution is too important to drop.
The federal government – which is eyeing the regulation of stablecoins, another type of crypto asset – needs to light a fire under the RCMP.
QuadrigaCX, though, was the business name for a numbered company in B.C.
That means the B.C. Civil Forfeiture Office, a provincial leader on asset seizures, must also keep championing this fight.