Ernst & Young Inc. (EY), the advisory service appointed to be QuadrigaCX's monitor after the Canadian exchange was granted creditor protection at the beginning of this month, has released its second report detailing the shuffling of the crypto exchange's hot wallet funds, as well as the work being done to secure various fiat holdings. The only problem is, the exchange is running out of money to fund the Companies' Creditors Arrangement Act (CCAA) proceedings.
Last week, EY published its first report, revealing that 103 of the 154 bitcoins stored in QuadrigaCX's hot wallets were "inadvertently transferred … to Quadriga cold wallets which the Company is currently unable to access." After the blunder, EY stated it would be taking the remaining cryptocurrency funds held in hot wallets and transferring them to cold wallets that it would maintain.
Finally, in what may be the biggest twist in the QuadrigaCX story so far, something has happened that was actually supposed to happen. EY's second report reveals that the monitor has in fact taken control of the exchange's remaining hot wallet funds. This includes 51 bitcoin, 33 bitcoin cash, 2,032 bitcoin gold, 822 Litecoin, and 951 Ether. Pending further order from the Nova Scotia Supreme Court, the monitor will continue to hold the funds in its own cold wallet. (Here's hoping everyone who can access the cold wallet doesn't die.)
However, because QuadrigaCX is QuadrigaCX, the report doesn't end there. Currently, EY is scrambling to cobble together enough funds just to keep the exchange's creditor protection proceedings going. The report reads: "The Applicants currently have no accessible funds to fund the CCAA proceedings, other than the interim financing provided by Ms. [Jennifer] Robertson which will be exhausted in the near term."
According to the report, Robertson, the widow to the exchange's deceased owner Gerry Cotten, paid a retainer fee of 50,000 Canadian dollars (CAD) to EY before the proceedings began, and another CAD$150,000 on February 6. Although there are "third party processors" who hold various amounts of fiat on behalf of QuadrigaCX, two specific cash resources are named in EY's report. The first is the Canadian law firm Steward McKelvey, which holds 1,004 of QuadrigaCX's bank drafts, totaling CAD$5.8 million.
The second named cash resource is a bit more complicated. A collection of bank drafts worth CAD$25 million were being held by QuadrigaCX's payment processor, Costodian Inc. Costodian Inc. has been a part of this story since January 2018 when the Canadian Imperial Bank of Commerce (CIBC) froze multiple accounts opened by the payment processor. CIBC claimed it couldn't determine whether the exchange or the individuals associated with the accounts owned the $67 million that was deposited. Before releasing the funds, CIBC had frozen CAD$25.7 million and $69,000.
As of now, Costodian Inc. has released four bank drafts totaling CAD$20 million. The payment processor has held on to one bank draft representing CAD$5 million and another representing $70,000. Costodian Inc. claims to be entitled to CAD$778,213 of the bank drafts for unpaid processing fees and will hold on to the two remaining bank drafts until further order from the Nova Scotia Supreme Court.
Unfortunately, the report makes no mention of progress made toward cracking open the exchange's inaccessible cold wallets. However, EY does half-explain how the 103 bitcoins managed to be moved into those inaccessible cold wallets, stating that the "inadvertent transfer occurred due to a platform setting error."