The collapse of crypto-exchange QuadrigaCX was the result of fraud by its founder Gerry Cotten, the Ontario Securities Commission concluded in an investigation.

The Canadian securities regulator has taken the rare step of publishing its findings on its 10-month investigation into QuadrigaCX, whose collapse in 2019 caused at least $169 million (US$125 million) in losses for 76,000 investors in Canada and abroad. QuadrigaCX shut down in January 2019, weeks after Cotten died unexpected while on his honeymoon in India, leaving behind a mystery of what happened to the Bitcoin and other cryptocurrencies on the platform.

“While public release of an investigative report is rare, we believe the tens of thousands of Ontarians who entrusted Quadriga with their money and crypto assets deserve to know what happened,” Jeff Kehoe, director of the enforcement branch at the OSC, said Thursday in a statement. “Our aim in making this information public is also to prevent this type of situation from recurring.”

The report outlines events from Quadriga’s inception to its eventual collapse, with a focus on how the platform was run, what caused its collapse, and what happened to clients’ assets.

Ontario’s securities regulator decided in February 2019 to review the matter, given that 40 per cent of investors in the platform were from Ontario. Over 10 months, the regulator analyzed trading and blockchain data, interviewed key witnesses, and collaborated with numerous regulatory bodies in Canada and abroad. The analysis included platform data relating to more than 368,000 client accounts and more than 6 million individual transactions, as well as thousands of QuadrigaCX-related emails.

The findings show that Cotten essentially operated a Ponzi scheme. He opened accounts under aliases and credited himself with fictitious currency and crypto asset balances, which he traded with unsuspecting Quadriga clients, according to the OSC. Cotten sustained real losses when the price of crypto assets changed, thereby creating a shortfall in assets available to satisfy client withdrawals. He covered this shortfall with other clients’ deposits. OSC staff calculated that the bulk of the $169 million in client losses – approximately $115 million – arose from Cotten’s fraudulent trading.

Staff also determined that Cotten misappropriated millions in client assets to fund his lavish lifestyle.

Such actions would have likely led to enforcement action against Cotten and QuadrigraCX:

“This is not practical given that Cotten is deceased and Quadriga is bankrupt, with its assets subject to a court-supervised distribution process,” the regulator said.

“The information presented in this report highlights the unique risks that can arise when using crypto asset trading platforms,” Kehoe said in a statement. “These risks are magnified when platforms trading securities and derivatives do not register with regulators and do not disclose critical information about their practices.”