Ponzi Schemes, Private Yachts, and a Missing $250 Million in Crypto: The Strange Tale of Quadriga
26 Nov 2019

“THE MERCY OF THE WAVES”

The smiling boy visited Sunnybrook Yachts in the summer of 2017, after the value of Bitcoin had reached an all-time high, having tripled in five months. Sunnybrook is the largest yacht brokerage on Canada’s east coast. Its clients tended to be surgeons and litigators and C-suiters who travel from Toronto and Paris and Hawaii to summer in Nova Scotia; their wives wear silks and Manolos and perfect fingernails that cost $300 yesterday at the salon. The smiling boy stood out. He wore a wrinkled golf shirt, cargo shorts, and beat-up Birkenstocks, and he was obscenely young, with sandy hair and pale skin that appeared not to have seen sunlight since puberty. He was accompanied by a girlfriend who drove her own Jeep. They struck the yacht salesman as a couple you’d less likely see at Scaramouche than in a Walmart parking lot. Most conspicuous was the odd way that the young man always seemed to be smiling. It was a gentle, unflappable smile. It put strangers at ease; it made him seem lighthearted. It was difficult to imagine that this particular trait was contrived, but later, after it was revealed that nearly everything about him was a work of pure contrivance, you had to wonder whether the incessant smiling was just another part of the act.

This summer day, however, he was dead serious. The smiling boy wanted a big boat.

“What’s your goal?” replied the yacht salesman, in the delicate manner of his trade. A yacht salesman never asked what customers were “looking to spend,” or whether they had ever been on a yacht, let alone knew how to operate one. He summoned a future in which the customer was already a proud captain astride a luxury pleasure vessel dividing a turquoise sea.

“I’d like a boat that I can cruise locally,” said the smiling boy, “and then take south.” He wanted to reach the Caribbean without having to stop in Canada or the United States.

That would require an extra fuel tank, the salesman explained, and a desalination system for drinking water. They settled on a customized Jeanneau 51 with a pink and cream interior: three cabins, a dining area for six, a dishwasher, a gas stove, a washer and dryer, an en suite bathroom with standing shower, and a swim platform with teak battens. When offered an electric motor for the life raft, the smiling boy gestured to his Tesla in the marina’s parking lot. “Sure,” he said. “I love electric.” The whole thing would cost $600,000, but expense never came up—only safety. He named his boat the Gulliver, after the traveler who trusted himself to the mercy of the waves and swam as fortune directed him.

Over several dozen hours of sailing lessons, the yacht dealer learned a few things about his customer. His name was Gerald Cotten, and he went by Gerry; his girlfriend was a property manager named Jennifer Robertson, or Jen; her two Chihuahuas, who liked to sun themselves on the deck as the Gulliver negotiated the islands and shoals of Mahone Bay, were Nitro and Gully. One of those bay islands—four acres of pine encircled by black sand—Cotten purchased that summer. He cleared trees and built a house, though he had no apparent plans to move in. The couple lived in a three-bedroom in Fall River, north of Halifax, a rich suburb only recently carved out of a forest near a long dark lake; Cotten owned a third home in Kelowna, in British Columbia’s wine country; a fourth in Calgary; and 14 rental properties in Nova Scotia, including, in Bedford, every house on a dead-end street. There were also the Lexus and the zippy single-engine airplane, a Cessna 400, which he’d never tried to fly. The couple traveled abroad constantly, and they planned to sponsor a home for 12 children at an orphanage in India. In India, Cotten remarked, the Canadian dollar went a long way.

Cotten rarely brought up his work, but details emerged. He was a founder and the CEO of Quadriga, Canada’s dominant Bitcoin exchange—something like TD Ameritrade for cryptocurrency. He ran the business from his MacBook Pro, which he always carried with him. Once he left it behind on the Gulliver, which caused a momentary hysteria as the yacht had already departed the dock. He had Crohn’s disease and seemed to subsist on hummus; when others drank beer, he produced bottles of hard cider. He loved to fly: planes, helicopters, drones. He seemed like the kind of guy who might retire early to an island somewhere.

Cotten returned for lessons the following summer, though not as often. He was busy. Then, in December, Robertson called Sunnybrook to explain that Gerry, while on their honeymoon in Jaipur, had died suddenly. She wanted to sell the Gulliver. When national news articles began to appear a month later, they emphasized another detail: Cotten was the only person with the passwords to the accounts holding Quadriga’s funds—cryptocurrency and cash—worth approximately a quarter billion U.S. dollars. Nobody knew how to find the money.

The yacht salesman had questions, though it was not his job to ask questions. More than 75,000 Quadriga account holders also had questions. The Nova Scotia Supreme Court declared the company bankrupt and selected the accounting firm Ernst & Young to serve as its third-party monitor, responsible for securing the lost funds belonging to Quadriga’s creditors. Additional investigations were begun by the Royal Canadian Mounted Police; the FBI; and at least two other law enforcement agencies that have not been publicly disclosed (though one of them is likely a federal agency in Japan). The most effective and thorough investigation to date, however, has been conducted by anonymous accounts posting on Twitter, Reddit, Pastebin, and Telegram. Their findings, though baroquely technical, could be distilled to a two-word conclusion:

Gerry’s alive.

By Nathaniel Rich, Vanity Fair, 22 November 2019

Read more at Vanity Fair

Photo (edited): Reg Natarajan [CC BY 2.0]

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