Purpose of the Report

Given the magnitude of Quadriga’s downfall, the harm done to Ontarians, and the novel issues surrounding crypto asset trading platforms, OSC Enforcement Staff announced in February 2019 that it would look into the matter.

OSC Enforcement Staff have the power to investigate and prosecute suspected violations of Ontario securities law. Enforcement investigations can lead to public hearings before the OSC tribunal and public decisions explaining the facts of the case. In this case, however, we concluded it would not be in the public interest to bring an enforcement proceeding before the OSC tribunal against Cotten or Quadriga. Cotten, the sole officer and directing mind of the corporation, is deceased; Quadriga has ceased operations and its assets are subject to a court-supervised bankruptcy proceeding. The accounting firm Ernst & Young was appointed as Trustee and Monitor in the bankruptcy and insolvency proceedings and has been engaged in identifying and recovering assets to be distributed to affected Quadriga clients. In contrast, our review focused on how the Quadriga platform operated, what happened to clients’ assets, the causes of the $169 million asset shortfall, and the implication of securities laws.

Protecting investors and fostering confidence in our capital markets are key elements of the OSC’s mandate.

Protecting investors and fostering confidence in our capital markets are key elements of the OSC’s mandate. In this case, our mandate is best fulfilled by sharing Enforcement Staff’s findings publicly. Typically, Staff investigations become public through a proceeding and findings are made by an independent decision maker weighing evidence during that public hearing. This situation is unique. While public release of a report of this nature is rarely done, we believe that making this review of the facts widely available may help prevent this type of situation from recurring.

This report outlines events from Quadriga’s inception to its eventual collapse. We focus on Quadriga’s operations—particularly its handling of client assets—analyze Cotten's trading, and assess statements made to clients in Quadriga’s communications, and by Cotten himself, about platform operations. We also discuss how, in our assessment, the Quadriga platform involved trading in securities.

We also outline regulatory considerations for crypto asset investors and crypto asset trading platforms.