Crypto Firm Cited in Bitfinex Case Had Also Worked With Quadriga

(Bloomberg) -- Gerry Cotten, founder of the Quadriga CX digital-currency exchange that unraveled after his death, had dealings with the Panamanian firm Crypto Capital Corp. that’s cited in a court order obtained by New York’s attorney general.

Bitfinex customers sent more than $1 billion to Crypto Capital last year, of which $851 million had been “lost, stolen or absconded with,” New York AG Letitia James said in a civil case. She accused Bitfinex and the issuer of virtual currency Tether of participating in a cover-up to hide the loss from Bitfinex customers. She didn’t name Crypto Capital as a defendant.

Crypto Capital was familiar to Cotten, whose Vancouver-based firm Quadriga Fintech Solutions Corp. owes 115,000 clients about C$260 million ($193 million) in cryptocurrencies and cash after shutting down in January. Quadriga was primarily run by Cotten, using his laptop, and his sudden death in December exposed problems with payment processors and banks and raised questions about where clients’ Bitcoin was stored. The digital exchange owner is going through bankruptcy proceedings in Canada.

“Companies such as Crypto Capital have proven useful in the sense that they operate as a payment processor that is able to receive transfers from clients, store funds and then process outgoing transactions as well,” Cotten wrote in a May 17, 2018 email to Bloomberg News. “Crypto Capital is one such company that we have/do use. In general it works well, though there are occasionally hiccups.”

An email sent to Crypto Capital wasn’t immediately returned. “We have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded,” Bitfinex said Friday in a statement.

Cotten said he understood that Crypto Capital used a few banks to process payments. The firm was popular with traders employing arbitrage strategies between exchanges because its fund transfers were comparatively easy to complete, he said.

Cotten wrote about difficulties getting Canadian banks on board with the cryptocurrency industry. Quadriga faced significant liquidity issues last year after Canadian Imperial Bank of Commerce froze about C$25.7 million of the firm’s funds held in accounts of a payments processor because of conflicting claims over ownership.

“The situation here in Canada is such that it is very difficult to obtain a bank account for cryptocurrency exchanges,” he wrote. “While it is possible, there are usually restrictions, such as only using it for storing funds or only using it for business expenses and not for transmitting funds to and from clients.”

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