Max’s Corner: Selling Bridges

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With more details coming out about the fallout from the death of Gerald Cotten, co-founder and CEO of QuadrigaCX, we thought it would be fitting to devote this version of Max’s Corner to the crypto industry’s sword of Damocles: scamming.

The Quadriga Affair

The already strange case of the QuadrigaCX affair has taken on another dimension of intrigue with new revelations coming out about one of the company’s co-founders.

QuadrigaCX was once Canada’s largest cryptocurrency exchange, but that changed in January of this year when Gerald Cotten, the company’s 30-year-old CEO and co-founder, died suddenly on honeymoon in India. When he died, Cotten was somehow the sole person with access to the roughly $190 million in crypto assets stored on the exchange. His death meant that, with no keys or methods of extraction, users would be unable to recover their funds.

In an industry rife with fraud, Cotten’s death was met with a cloud of suspicion. He died of Crohn’s disease, an illness that is rarely fatal, in India, a country renowned for producing fake death certificates.

In addition, the finances of QuadrigaCX were rumored to be in disarray prior to the death of its owner, with the Canadian Imperial Bank of Commerce sequestering $30 million in assets from the exchange after it was unable to identify the legal owner of the funds. Following this development, QuadrigaCXstruggled to meet customers’ withdrawal requests, and daily trade volume dwindled down to $600,000 by October 2018.

Cotten died two months later in India after marrying his partner of two years, Jennifer Robinson. Just two weeks before his death, Cotten changed his will to leave all of his property—despite QuadrigaCX’ financial difficulties, Cotten had managed to buy 16 properties and his own airplane, altogether worth about $9.6 million—to Robinson.

Cotten died on December 8th, 2018, after being admitted to the Fortis Escorts hospital in Jaipur. Following his death, the hospital sent his body back to the hotel he was staying at. When his wife tried to have his body embalmed, the first place she tried refused because the body was coming from a hotel and not a hospital.

Cotten’s wife was eventually able to get his body embalmed with an official death certificate (on which his last name is spelled “Cottan”) and bring her husband’s remains back to Canada with her to bury them. The memorial services were held in Halifax, Canada on around December 12th, and, according to eyewitnesses, there was a closed-casket funeral. The funeral and all the memorial services were held before the public was made aware of Cotten’s death.

Since Cotten’s death, numerous investigations were initiated into the strange circumstances surrounding his death and the missing funds. Among other details that have come to light, it has been discovered that the accounts to which Cotten had sole access had been drained at some point prior to his death.

Recently, investigators have detailed another thread in the warped fabric that is the QuadrigaCX’s affair in the backstory of co-founder Michael Patryn. According to Patryn, he is the founder of Canada’s first blockchain incubator, Fintech Ventures Group, and served in an advisory role on various crypto-related projects before he met Cotten online and decided to move to Canada to develop the QuadrigaCX project with him.

However, according to reporting originally done by The Globe and Mail in Canada, Michael Patryn is a pseudonym for Omar Dhanani, a felon convicted of money laundering and fraud charges in America. Dhanani served 18 months in prison for credit card fraud which he engaged in as part of a criminal organization known as “ShadowCrew.”

Patryn has denied that he is Dhanani, but The Globe and Mail have reported a number of connections between the two identities, including attempts by Patryn to cover up his attempts to hide his past.

Court records show that Patryn hired Reputation, a Canadian company that cultivates its clients’ online presences, which in turn published fabricated stories about Patryn, claiming that he was a global speaker on financial technology and a mixed martial artist.

The more the QuadrigaCX story unfolds, the crazier it gets.

CashCoin Cashed Out

Our next story also features India in a prominent role, as four people were arrested this past week in New Delhi for scamming investors out of money in a cryptocurrency scam.

According to police, these four individuals were connected with CashCoin, an Indian cryptocurrency that launched last year. For the past year, the team has been speaking at seminars and courting investors with promises of huge returns on small investments, going as far as guaranteeing that investors would at least double the money they put into the project.

Over the course of a year—a year in a bear market mind you—CashCoin was able to raise over $14.5 million in investments. It seems that part of their success stemmed from their ability to get at least one Bollywood actor, Shabaj Khan, to promote their coin. Police are now investigating Khan’s role in the project.

This is not the first time that Bollywood has been embroiled in a cryptocurrency controversy. Last year four well known Bollywood actors openly promoted projects by the mastermind behind the GainBitcoin scam, Amit Bhardwaj. With his crypto ponzi scheme, Bhardwaj duped investors out of over $300 million.

Ripples of Anxiety

The above stories are just a small sampling of the iniquitous underside of the crypto industry. While a certain level of questionable activity is to be expected, given human nature and the excitement that the crypto industry has engendered globally, scams of this magnitude, happening at the rate at which they are currently, are an existential threat to the future of the industry.

All well-established cryptocurrencies face more scrutiny due to the malfeasance of bad actors.

We saw some of this scrutiny directed towards Ripple when Jason Bloomberg wrote a column questioning whether or not Ripple was a scam. Ripple uses blockchain technology to develop methods of cross-border money transferring.

Although Ripple is one of the most popular cryptocurrency projects on the market, Bloomberg provided a very unflattering portrait, ultimately claiming that Ripple was nothing more than a glorified pump-and-dump scheme.  According to Bloomberg, Ripple’s rise has been a tale full of sound and fury—and a great deal of money—but without a product of any significance.

Key to Bloomberg’s analysis is Ripple’s inflated value. Pump-and-dump schemes traffic in the perceived value of an asset, which often wildly differentiates from its intrinsic value. Ripple, holding over 60 billion XRP, has a valuation of around $10 billion.

However, Bloomberg argues that the valuation is ludicrous given that the technology behind Ripple is either fatally flawed or non-existent, its “partnerships” are often nothing more than paid experiments that ineluctably fail, and its equivocation and refusal to classify itself as a security is a means of circumventing regulatory stipulations.

The Ripple community was hardly pleased with Bloomberg’s column, and he has become the object of their collective derision. However, the anger he has provoked has done little to answer the questions he posed.

For all the success in the world, Ripple is, like many other coins in this space, a centralized entity. In a space that is devoted to the individual and the decentralization of the global financial market, there will always be tough questions directed towards such enterprises. In my book, that’s a good thing. And we, at Bytecoin, will be keeping tabs on how this situation plays out.

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