Provincial securities regulators in British Columbia, Canada, won’t be investigating the QuadrigaCX scandal. However, new developments could see Canada’s largest securities body, the Ontario Securities Commission (OSC), begin an investigation.
On Friday, according to Reuters, the OSC has confirmed in a statement it will be looking into cryptocurrency exchange QuadrigaCX, where currently $190 million in cryptocurrency has been lost. Though an OSC spokesperson did not confirm if the regulator will conduct a formal investigation, it said:
Given the potential harm to Ontario investors, we are looking into this matter.
The OSC’s role, as the Ontario provincial arm of the Canadian Securities Administrators (CSA) is to protect regional investors. In its “2018-2019 Statement of Priorities,” the body committed to “innovative regulation” of cryptocurrencies and actively encourages fintech start-ups in the province.
Canada has yet to beef up crypto regulation and add a more comprehensive legislative framework for the sector. But it has also taken action against illicit ICO offerings and the OSC may well decide to pursue QuadrigaCX further.
Allan Goodman, co-chair of a technology group at Goodmans LLP believes the OSC would first check if QuadrigaCX has breached securities laws in Canada. He stated:
For example, should (Quadriga) have been registered as an exchange and were any securities laws breached with respect to the trading of the coins on the exchange?
Earlier, the British Colombia Securities Commission (BCSC) said QuadrigaCX was outside of its jurisdiction. It will take no action to benefit those affected.
A BCSC spokesperson told Bloomberg in an email:
[BCSC] does not currently have any indication that Quadriga CX, the crypto asset trading platform, was trading in securities or derivatives or operated as a marketplace or exchange under British Columbia securities laws.
The QuadrigaCX scandal is unprecedented. Its founder Gerald Cotten, reportedly the only person with access to QuadrigaCX cryptocurrency cold storage died suddenly in India. There were no protocols in place to allow another QuadrigaCX employee access and now no one can reach the $190 million belonging to QuadrigaCX users.
There is ongoing speculation about whether Cotton is really dead. Or if this could be some elaborate scam, as well as if QuadrigaCX really held cryptocurrency balances in cold storage.
One user, Ethan Lou, with $2,000 invested in the platform and who met with Cotten in 2014, writing for the Toronto Star says:
Cotten’s death in India is suspicious. Vancouver’s Quadriga had been having cash-flow problems for months. Twelve days before Cotten’s death, the man made a detailed will, including money for his Chihuahua dogs — how did he neglect his laptop password?
Last Tuesday, a judge gave QuadrigaCX a 30 day stay on claims from creditors and potential lawsuits while the exchange continues to try to gain access to Cotton’s laptop and the millions in lost cryptocurrency.