QuadrigaCX Judge Approves $1.6 Million in Expenses for EY, Law Firms

A Canadian judge approved more than $1.6 million in fees for firms that are seeking to recover funds from the now-defunct Canadian crypto exchange QuadrigaCX.

Nova Scotia Supreme Court Judge Darlene Jamieson ruled Wednesday that all activities undertaken and fees incurred by Ernst & Young (EY), Stikeman Elliot (EY's legal counsel), Kirkland & Ellis (EY's American legal counsel), Miller Thomson (representative counsel) and Cox & Palmer (representative counsel) under the ongoing Companies' Creditors Arrangement Act (CCAA) proceeding on behalf of Quadriga would be approved.

"There being no expressed opposition to the activities and accounts as presented by the monitor nor to the fees of its legal counsel, I approve the fees and activities of the monitor during the CCAA proceedings and the fees presented towards legal counsel," Jamieson said.

EY had a complicated task in trying to recover Quadriga's missing cryptocurrencies and fiat holdings from third parties, as well as in trying to determine whether Quadriga indeed held the funds it claimed to have, the judge said.

"The monitor's work has been extensive in administering the CCAA proceeding and seeking to recover funds on behalf of Quadriga and its affected users," Jamieson said, adding:

"The monitor has faced complicating factors, including a lack of books and records, and the use of third parties to store information. This is the first insolvency case in Canada involving cryptocurrency and has presented a number of unique issues, including requiring specialized resources for the monitor's investigation."

EY and its legal counsel charged $1.3 million, ($1.7 million CAD), while the law firms acting as representative counsel charged $340,000 ($446,000 CAD), broken down as such:

• EY: $592,396.57 ($778,444.90 CAD)
• Stikeman: $684,654.63 ($899,677.57 CAD)
• Kirkland & Ellis: $14,367.27 ($18,876.44 CAD)
• Miller Thomson: $302,720.47 ($397,793.00 CAD)
• Cox & Palmer: $37,023.05 ($48,650.53 CAD)

All told, the judge approved $1,631,161.99 ($2,143,442.44 CAD) in costs to each of the companies.

The payments will come from the recovered funds in the creditor accounts, which total roughly $25 million ($33 million CAD), according to a previous report by EY.

This leaves roughly $23.4 million (or $31 million CAD) to be distributed among the creditors. EY is trying to secure another $9 million ($12 million CAD) by selling off certain assets from the estate of Gerald Cotten, Quadriga's deceased founder and CEO.

Claims process

Miller Thomson recently also kicked off the claims process for Quadriga creditors, with information posted to its website. The exchange's former users have to fill out a form, with a final due date of August 31.

Users will need to provide their Quadriga account number, full name, telephone number and address, as well as the amount of each cryptocurrency and fiat they held in the exchange prior to its closure. EY has set up a website for individuals unsure of the amounts they held, or who need to verify.

Any users who disagree with the amounts shown on EY's website will have to provide documentation supporting what they believe is their actual claim amount. A full set of directions on how they can do so has been posted to Miller Thomson's website.

QuadrigaCX first made headlines worldwide in January when court documents revealed Cotten had died, taking the passwords to the exchange's crypto wallets with him. At the time, his widow, Jennifer Robertson, filed an affidavit claiming that Quadriga owed roughly 115,000 users a combined $190 million, and that she could not access any of its funds as Cotten was the only operator with knowledge of the private keys for its crypto accounts.

Subsequent investigations by EY found that Cotten may have actually appropriated his customers' holdings for personal use, including to support the margin trading of cryptocurrencies such as zcash, dogecoin, dash and omisego.

EY reported in March that it could not locate or account for more than $100 million in various cryptocurrencies that the exchange was supposed to have held.

While the exchange entered the CCAA process in January, EY moved to have it placed in bankruptcy, indicating that Quadriga will not recover from the losses. Nova Scotia Supreme Court Judge Michael Wood approved the motion, with bankruptcy operations running parallel to the CCAA proceeding.

With Wednesday's ruling, the CCAA process will wrap up, and the exchange will officially only be in bankruptcy.

Nova Scotia Supreme Court image by Nikhilesh De for CoinDesk