WBD177 Audio Transcription

Quadriga: What Happened to Gerald Cotten with Nathaniel Rich

Interview date: Wednesday 17th December 2019

Note: the following is a transcription of my interview with journalist Nathaniel Rich. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

In this interview, I talk to author Nathaniel Rich about his investigation into Quadriga for Vanity Fair. We discuss the suspicious death of Quadriga's CEO Gerald Cotten, the missing $250m of customer funds and the FBI's investigation.

“The most likely scenario is that he was a con artist who got in way over his head and fucked up and got desperate and panicky made some terrible decisions... and died in India.”

— Nathaniel Rich

Interview Transcription

Nathaniel Rich: Well thank you very much for having me on. I appreciate it. I had no idea how the Bitcoin community, for lack of a better term, would respond to the piece, so it's been exciting to see! My sense of it is that there's been a lot of enthusiasm and so that's been good. Of course my biggest fear was getting some very basic technological aspect wrong.

Peter McCormack: Yeah, don't worry about that. I just did one with Jamie Bartlett. He is from the BBC and he recently did a podcast series called The Missing Cryptoqueen" about the OneCoin scam.

Nathaniel Rich: Oh yeah, that sounds great! I haven't listened to it yet, but it sounds fascinating.

Peter McCormack: I mean it is really, really good. He did a great job with it and I interviewed him and he doesn't have a Bitcoin background, but he could kind of get a good sense for Bitcoin and the technicals and kind of what is a scam or what isn't. But I found your story, I read it and I'm not one for usually reading long form pieces, I'm more of an audio person but I've read it through twice now and I found it very interesting because I'm aware of this story.

You're obviously aware of the story, but I've not done a deep dive in it. The closest I've got is actually reading your article. So there was a lot I didn't know until I read yours, but still with what I knew about the story, I couldn't help but thinking this is a very convenient death.

Nathaniel Rich: You mean even before you read? Well I think that was the assumption that a lot of people certainly within the Bitcoin world made right away. What I did find in my reporting, speaking with people, many of whom are totally legit and have very virtuous reasons for working in the industry or investing, was there is a level of secrecy, that approaches paranoia that almost approached fantasy I found, which was at some points amusing and at other points frustrating.

When I was just trying to ask somebody for basic information and I'd have to go through a whole kind of protocol of earning trust and of course I understand how that connects to the ideology, of course it draws people who have these concerns and is predicated on not trusting strangers and all of that, but it was almost cartoonish at points. But I think it was natural for people in this world to question the official narrative. So right away you had folks, not only creditors, but just people in this realm instantly jumping to the conclusion that "no, he can't actually have died. There must be something more to the story."

Peter McCormack: Well, I think a lot of people in Bitcoin are very cynical. There's been so many incidences, thefts or hacks or exit scams that instantly when something like this happens, you are very suspicious. There was like a Mt Gox PTSD, which stays with everyone. So I did a series on Mt. Gox I interviewed Jed McCaleb, Mark Karpeles and a few of the other players in it and it was very interesting for me as somebody much newer to Bitcoin.

I think I was a lot more understanding of Mark Karpeles' position. I think a lot of people looked at it with $20,000 Bitcoin eyes, when it wasn't a $20,000 Bitcoin when it happened and he just made a bunch of stupid mistakes. But there's certainly a PTSD that's there. So when something like Quadriga happens, there's kind of instant suspicion and yeah and I expect as you came in, you were probably a little bit more objective than the people you spoke to?

Nathaniel Rich: This is the shocking thing for me in the reporting, sort of the turning point I guess, it was that I came into it, I thought, "well this is..." I actually had almost the opposite response I guess. Early on when I first read the accounts was not to say, "oh, isn't it convenient that he's dead" but more, "isn't it convenient, this sort of mastermind theory, it almost seemed too good to be true from a narrative standpoint that this guy faked his own death and got away with it." It seemed outlandish!

So the shocking turn for me in the reporting was when I finally interviewed the lawyers at Miller Thompson, this very fancy Bay Street Canada law firm who represent the class of creditors and I said, "well, I have to ask you, do you think any of these conspiracy theories you see on Reddit are accurate?" And they said, "oh yeah!" Not only did they think that a lot of that might be true, but it was clear that they and Ernst and Young who is doing the investigation on behalf of the class, had even gotten a lot of their breaks from revelations they had found on Reddit!

So at that point I realized that actually the serious investigators, the serious sleuths were the ones who were operating these anonymous accounts online and not the professionals at Ernst and Young or even RCMP, the Canadian FBI basically or the FBI itself and that opened my eyes to different dimension of the story.

It's what makes this story so unique I think in the annals of contemporary crime and cons, is that the people who are most adept at investigating a case like this are not paid professionals, but sort of amateurs I guess or even Bitcoin professionals who are generally outside of mainstream, criminal investigative communities. So that opened up this whole realm of actually taking seriously things that I would never have dreamt of taken seriously before I started reporting the piece.

Peter McCormack: So are you aware of this character Craig Wright who claims to be Satoshi?

Nathaniel Rich: Yes, I've come across him.

Peter McCormack: So actually he's suing me right now in the High Court in the UK for calling him a fraud. But one of the most interesting things about him is whenever he puts out one of his claims, there is like an army of people who research it and debunk it at the most technical level that it's quite astounding to be honest. So much so that there's now a whole website dedicated to debunking at a very highly technical level, his mistakes and where he's wrong.

So that itself it's super interesting. But I guess where I want to start with you on this, which is different from what I thought I would approach it with you, is I almost want to start with the conclusions and work back because the reason being is, after reading your article, I had a slightly different view than I originally came in. But, the first question I want to ask you is, has anybody seen the body?

Nathaniel Rich: No, there was no autopsy requested in India. The widow Jennifer Robertson did not request one, which she's entitled to do. Although you could certainly defend her decision, assuming he actually died. The body then is flown back with her to Canada, there is a funeral at a funeral parlor in Halifax, and it's a closed casket and then he's interred.

The only investigative body that can disinter it is the RCMP and to this point, they have declined to do so or shown no interest in doing so. But what I have heard from my sources who have been interviewed by both the RCMP and the FBI, which has its own considerably more robust investigation it would seem, is that the FBI, because nobody's seen the body, is not taking it for granted that he's dead.

Peter McCormack: So he was buried, not cremated?

Nathaniel Rich: Yes, there was originally a rumour that he was cremated, but no, he wasn't cremated.

Peter McCormack: Well, the easiest thing to do is exhume the body and check?

Nathaniel Rich: That is. I think there's a decent chance that might happen. If these investigations dead end somewhere it would seem to make sense. But yes, impossible for us to know at this point.

Peter McCormack: So I'll tell you where my kind of switch came with the article is that originally I was kind of on the fence in that there were the suggestions that it was an exit scam, $250 million and whilst totally believable because many things like that have happened in the world of Bitcoin, I didn't a 100% buy it, because I was like, well if he is really exit scammed, how's he really going to live a life on the run and move these coins without anyone knowing and seeing, someone will come after him. So I was kind of on the fence.

I had some doubts about whether he really had died, but at the same time I thought, well I'm probably just being a cynical Bitcoiner. But then I read the article and realized that he'd most likely lost all the money and then I felt like, well, actually now there's a very good reason to do a disappearing act because you don't have the money. Therefore wherever he is, if he is alive, if he has cash, there's very little paper trail to him.

He could assume a new identity somewhere maybe in deepest dark is India somewhere now or in Panama, who knows. So I kind of came to the fact that the money was lost, whether it's through bad investments or trading etc, it's more likely that he's alive than if the money's still existed. Does that make sense?

Nathaniel Rich: Absolutely! The way I wrote the piece, there are a couple of scenarios. There's the mastermind theory in which it's all going to plan essentially, and it's all planned out this way and a deception, where there's the royal fuck-up theory where he's just an incompetent scammer and everything goes wrong. Then of course there's the kind of virtuous theory that he's trying to overcome his youthful, two-bit con artists games and thinks he can go straight with this exchange.

So what you're proposing is essentially a combination of those first two, that there's a fuck up who then masterminds his own disappearance and it is something I considered. I thought one of probably the best arguments for that or the best motivation for that narrative, would be if he lost a bunch of money that was possessed by some powerful, dangerous people.

So then we get into this idea that Quadriga was used as a money laundering operation by some very powerful drug cartels and again, there's some evidence that it was, and so the idea then that he got all this money, ill-gotten funds and then lost it and then tried desperately to recover it through these ridiculous trades. Then when he realized he couldn't, he went on the run basically. I think that's possible.

But I suppose I would want more evidence suggesting that he was in cahoots with some serious criminal some serious criminals and I guess where you would look then is the relationship with Mike Patryn and Patryn's own connection in the criminal underworld and the money laundering that he was involved in, under various guises and other operations earlier on, particularly Midas Gold. So I think that's possible.

I wouldn't rule it out. I think the greatest challenge to the fake death scenario, regardless of the motivation for faking a death, does come down to the body and the widow. So you have to answer the question, is the widow in on it? If the widow is not in on it, then you have to then to believe that she witnessed this horrific 24 or 48 hours of her husband being fatally sick and buying it and that's almost impossible to believe, that he would fake this terrible illness where he's basically shitting himself to death.

So I'd rule that out. Then the question is, well, if they're in on it together, why didn't she disappear as well? Why did they risk her coming back to Canada having to deal with the lawsuits and the lawyers and the real estate and all the rest.

Peter McCormack: Add to that that if there are criminal dark forces at play, you add significant risk to her. If there are dark forces who've lost money, they might do anything to leverage her to say, "where is he? Is he alive?" That seems quite risky. I also think if she was in on it, one of the most sensible things to do would be to cremate the body.

Nathaniel Rich: Well, one of the most sensible things to do would be to say, "oh they fell off a cliff" or "they were in a car crash" or they're in some kind of double death situation. Rather than to say he had Crohn's disease, died from complications of Crohn's disease and she has to play the part of the morning widow for years. So I think that's the best counter argument is sort of the difficulty of that fake death scheme. But certainly there are plenty of people who think that that is exactly what happened and in fact ,the FBI and these other federal investigative organizations are not ruling it out.

Peter McCormack: Do you have a gut feel yourself?

Nathaniel Rich: My gut feeling is that he was probably... What I write in the piece that is the most likely scenario is that he was a con artist who got in way over his head and fucked up and got desperate and panicky, made some terrible decisions that were informed in part by an inflated ego, given the success he'd had and died in India. But that doesn't mean that. The other thing, I think where I come down and I've seen other people sort of in the Quadriga sphere come down this way, is that it's something like 70% or 80% he's dead, but a pretty, impressive 20% to 30% chance that he's not.

Peter McCormack: Which makes it an interesting story and if they would ever to exhume the body and he wasn't there or it wasn't him...

Nathaniel Rich: I should say when I started reporting the piece, I was at 99.5% that he was dead. So it was through the reporting it, I became less certain which was the biggest surprise to me.

Peter McCormack: Well that's always the case with these really interesting cases. It doesn't matter whether it's crypto or something else, when you get into these stories where there's so many different facets of information that leave you with a little bit of doubt about what actually happened, these mysteries whether it's something like the disappearance of Madeline McCann or something, whenever these stories that have so many different interest in players and characters where it's kind of frustrating not to even know, like having the mystery is kind of a bit fucking frustrating! Okay, I guess I'd probably say that's a fair balance, like the 70/30, 80/20.

Nathaniel Rich: What makes it so interesting though is not only the who done it aspect of it, but I think it raises some larger issues, about not just cryptocurrency, but the way how we put faith in institutions or even those of us who are most jaded about putting faith into institutions, nevertheless, trick themselves into thinking that this Quadriga exchange was trustworthy. It does seem to touch on a sort of greater human frailty that even those are most cynical, most on guard who have invested their lives in this new kind of currency that is essentially designed to avoid falling into these social traps, still are not immune from basically a cheap, two bit conman.

Peter McCormack: So most Bitcoiners would turn around and say that they're morons because there's a couple of terms that are kind of a key and repeated regularly. The first one is; 'don't trust, verify.' Bitcoin is trustless and you shouldn't trust anyone. But the other thing is there's this saying, I don't know if you came across it, but "not your keys, not your Bitcoin", which is the idea that if you don't have the private keys, it's not your Bitcoin.

So there's a very leading person in Bitcoin called Trace Mayer, who last year on 3rd January, the 10 year anniversary of the Bitcoin protocol, ran a program whereby he wanted people to go to exchanges and take all their Bitcoin off, because you should not be trusting the exchanges and by that it did two things. Firstly, it forced people to own their private keys and manage their Bitcoin. But secondly, it forced us to see if we can trust these exchanges.

There's also people who've been pushing for exchanges to provide verifiable proof that they hold the funds that they say they do. But actually I don't think that's the best option, but so many people obviously trusted this exchange and also interesting following your article, he managed to build up a lot of trust in himself, turning up at events, donating lots of money, it's typical, you could say almost sociopathic behaviour. I ended up thinking he's kind of the crypto Bernie Madoff, that's what I've got written down here. It feels like it became a Ponzi.

Nathaniel Rich: Yeah, I wouldn't qualify it, I think it's straight up sociopathic. Even before the accident or whatever happened at the end, the level of recklessness with which he was running the exchange, even if his ultimate goals were virtuous and he wasn't keeping any records, so there's a total disregard of any kind of concern of protecting his client's funds. But you're right, with the exchanges are this funny loophole in the Bitcoin world where it's a work around it. It is a black box and you don't know what happens inside of it and what goes on in the exchange is not on the blockchain.

So it was shocking to me once I learned that I didn't understand that, when I had started reporting, but once I realized "oh, this is like just this black box where you throw your money and then you hope that you get it out", it totally subverts the basic ideals and even methodology of cryptocurrency. Yet you look a lot of people, a lot of grandmothers and uncles lost money on this exchange, but also a lot of serious crypto professionals in Canada lost a lot of money.

So there was an element of social engineering and some of the sources I interviewed and quoted in the piece said as much, even those who knew that the business partner, Mike Patryn had a really shady past, they thought "well Gerry seems legit, so even though it's an exchange and even though it's connected to this other guy, I'm still going to invest in it." Of course they feel foolish now and they understand intellectually why we should never keep money on exchanges, but that didn't stop them or enough of them from doing it anyway.

Peter McCormack: Yeah and it's a real shame, but it will happen again and this is the sad thing. I don't keep anything on an exchange. I understand why some people do from a lack of experience, but it almost feels like some of the exchanges, even though it's probably not within their interest, should be encouraging people not to keep things on exchanges.

So what would be I think would be very useful for people listening to this is for you to explain the scale of the mismanagement of the money that you became aware of, because that was fascinating. The reason I ask is it's a company holding $250 million in funds, you would assume a very professional operation with very professional security practices and it felt like, I don't know, it felt like a small business operating out of a garage with no real processes.

Nathaniel Rich: Yeah it was worse than that. It was a single, 20 something year old on his laptop, they didn't even have the garage! He had an office at one point, but as I write in the piece, it basically looked like a front, there were just a few desks and nothing was really going on in there, it was all on his laptops. So to answer your question there, there was no accounting. So one of the more comical aspects of this piece is that you have Ernst and Young, which is one of the major big four accounting firms in the world, who come in and become the monitor.

Their job is to get to claw back as much of the funds as possible for the creditors, the 75,000 plus people who lost money on the exchange and they get access to the Quadriga computers and the internal website. The level of sort of shock and disdain you imagine them... You can see it in their very sober technical report where they basically say in formal language, "we can't believe what the fuck we're seen. There's absolutely no accounting! There's no sense of where the money's coming in, where it's coming out."

He was responding basically on an ad hoc basis to individuals as they asked to withdraw money from their account. At the end when it got so crazy, it seemed that he was prioritizing account holders who were making the biggest noise on social media. So anybody who posts on Reddit and it's like, "what the fuck is going on with Quadriga? I've had a $3,000 that I've been trying to get out for three months!" Boom, the next day Gerry would send him his money. But if you were just quietly frustrated, it took much longer.

So there weren't any internal controls, there weren't even other employees, he had some contractors who were trying to keep up, but they were way behind and they would just get these... It all functioned through this process of tickets, which were essentially complaints. So if somebody couldn't get their money out, they would file a ticket, a complaint, and say what the problem was. They had this backlog of, it sounds like hundreds of complaints, that they would just be working through and it seemed like the main job of Quadriga, the main work that was being done during the last few months was simply trying to figure out which disgruntled customer to send their money to.

It's not like a bank website where you say withdraw $100 and it comes out, this was all done manually! He was doing things in Excel files, that was essentially like what you would imagine a teenager to do if he was asked to run an exchange. So it was totally chaotic and if all you knew about Quadriga was that they had no accounting whatsoever, I think the inescapable implication would be that it was a scam, that there was no real interest in actually running a professional business, but it was simply to accumulate as much money as possible before people found out what was going on.

Peter McCormack: But it doesn't sound like he did accumulate much money. He sounded like he did the opposite and the operations of the business sound very much like, somebody who's gotten themselves into financial difficulty and they're letting the red letters for all the bills kind of pile up and they're dealing with the one they have to most quickly. If it was a scam for him to build up as much money as possible, he did the opposite.

Nathaniel Rich: Well the problem was because he was so incapable, not only for technical reasons but also for legal reasons of doing a lot of the work himself, he had to outsource a lot of it. So he outsourced web design, he outsourced all the banking as well and he was paying... So enormous amounts of money did start flowing in when Bitcoin started rising, but he was also spending a fortune on transaction fees to these third-party payment processors who were the intermediary between Quadriga and actual banks, as he used a loophole in regulatory law in Canada, which furthermore opened him up to other scams against him.

So a lot of these third party payment processors, who are essentially functioning as a legal workaround, maybe I think that's the kind of business that might be more likely to not respect law laws and regulations. So a lot of those companies started basically flat out stealing from Quadriga as well. Then there was a technical error where they lost $14 million in an Ether bug!

So there were a bunch of cases where they lost millions of dollars at a time, whether through faffed or incompetence and at one point a bank grew suspicious of one of these third party payment processors and seized about $25 million, so there were a lot of deficits as well. But when the market was running, there was so much volume that he was doing pretty good and didn't really care about those losses. It was only when the market started to fall and people wanted their money back that he was in a bind.

Peter McCormack: Shit! It's fucking insane as a story. At the time they went to India, have you got any idea of the amount of funds they had actually in the business?

Nathaniel Rich: Yeah, so publicly by the time he goes to India, Quadriga was in trouble. This is the end of 2018 and a lot of people were complaining about not being able to get their funds out. His excuse at the time is this lawsuit that he's been in tangled with CIVC, one of the big four Canadian banks, which I was just referring to, where they had seized something like $25 million from a third-party processor and so he blamed the lack of funds on the seizure.

But in retrospect, that doesn't quite make sense at all, because that's something like $25 million and he should have had about, $250 million, so it doesn't quite add up. What we now know is that he'd already lost a lot of the money, but it's hard to determine if he had lost all of the money, except for that $30 million that was impounded? Had he lost $200 million? Had he lost $100 million? That's where it gets a little bit tricky. But he'd certainly squandered, I think it seems like at least more than a $100 million of it by that point.

Peter McCormack:He was certainly at the point where he had an incentive to just disappear. The pressure was on...

Nathaniel Rich: The pressure was on and there was no apparent way out at that point.

Peter McCormack: Because the market was crashing. So add to that then, how much has been recovered?

Nathaniel Rich: So far? Something like $30 million, which is basically only the low hanging fruit. So it's kind of the scraps that were left in their various wallets that they found and the money from a couple of these third party payment processors that have agreed to give the money back to Ernst and Young.

A lot of the funds we now know, were on these other exchanges where he was seemed to be gambling them and most of those exchanges it seems, are not participating and are basically not agreeing to turn over the money or to turn over their internal records of what happened to the money to investigators. That's one of the murkiest parts of it, because I do think that the FBI has been more successful there than the RCMP and I've been told that the FBI actually does have at least some of that information of where the money went that was on these other exchanges.

But that's still pretty obscure because of course the FBI investigation is totally under wraps. You would think that if any of those exchanges had significant amounts of money still on their exchange in these accounts that Gerry started, if they were participating that they would turn it over to Ernst and Young and there's no indication that they have. So my best guess is that all the money that he put on these other exchanges was gone before his death.

Peter McCormack: And he was on these exchanges trading? He was trying to trade himself out of the position he got into, but turns out he's not a particularly good trader.

Nathaniel Rich: Well that's one theory. He was certainly doing a lot of reckless trading on these other accounts. There's another theory that the FBI is interested in, the idea being that the trades were so reckless and so crazy and so exotic, trading on much more obscure forms of cryptocurrency, that they could have perhaps been structured in such a way that he was losing the money to another account that he either controlled or that someone in cahoots with him controlled and thus, it was a way of laundering the money through the black box of another exchange to another person or entity.

So that's possible, although it does seem more likely that he simply started to panic because he had had lost some of the money he was trying to earn it back by making these crazy bets and of course they failed and he got even further into all this.

Peter McCormack: Tell me a little bit about his background because he's had a history of being involved in very questionable projects/scams in the past?

Nathaniel Rich: Yeah, he's sort of a suburban guy, well educated, grew up in Bellville, sort of a smaller city between Montreal and Toronto and he went to a good college to an honours program at York Business School, undergraduate, graduated with honours and never got a job after graduation. Right away, he seemed to have been involved in cryptocurrency.

That was sort of the official narrative. But what I discovered in the reporting was in fact, beginning in high school probably his freshman year, even at the age of 15, he was already visiting regularly these extremely dodgy scam websites, particularly one called Tuck Gold which was run by the Krassenstein brothers, who became kind of internet celebrities in the U.S most recently in the last couple of years after Donald Trump won the White House and they became the sort of leaders of the online resistance.

Of course that was kind of scam in itself, but these were these websites, Tuck Gold and other websites like it were these kind of Ponzi scheme clearing houses where you could find schemes to invest in. Of course, they have other names, but they're essentially all Ponzi scheme fair machines. Find schemes to invest in, you can find people to help you run your own Ponzi schemes, they're strategies on how to invest in these high yields schemes and get out in time before the Ponzi takes all the money to basically outsmart the Ponzis and tons of chat rooms about all of these subjects.

So he starts to get involved in this world at 15 and starts his own investment company business within a few months, SNS Investments, which the prospectus is hilarious. He talks about how he goes to great lengths to talk about how it's not a Ponzi scheme in his advertisement basically for the investment firm. So I'm not going to tell you anything, but you will get these 150% profits within a week and it's definitely not a Ponzi scheme. That's essentially what you would imagine from a 15 year old and that was the first of a long series of schemes he ran that became a little bit more sophisticated but not that much more sophisticated.

He advertised them in these forums and it would always follow the same pattern just about, which is "here's a great deal, invest your money with me, you'll get these enormous returns" and then at a certain point, something happens, often there's a problem with a bank, which sort of prefigures what would actually happen with Quadriga and CIVC, where funds have been seized or some banking partner has put a block on funds and then he cuts off the returns or people get smaller and smaller amounts or percentages of what they're owed and excuse after excuse comes about until the investors finally give up all hope.

It's a long process of attrition, but this is the familiar pattern for these online schemes and then he starts a new one under a new name and it all begins again. So he did that for years all the way up until he begins Quadriga.

Peter McCormack: So he has no problem with nefarious business ideas?

Nathaniel Rich: Yeah stealing from people and total invention and yes, promising returns that he can't possibly back.

Peter McCormack: Did you speak to his wife?

Nathaniel Rich: She responded to a query of mine. I wrote her a letter when I was coming to Halifax to report the piece and I think she hasn't responded to really any other reporters, at least not since the first few weeks after the death was reported. She wrote me a very polite response that was mainly a recommendation to enjoy the boats and the Halifax harbour, something to that effect, as it is a beautiful time of year in June to see Halifax, but that she would not consent to an interview. I was in touch with her lawyer after that for a few additional sort of fact checking type questions.

Peter McCormack: He had a number of assets as well or they had a number of assets, a number of properties, which also did make me laugh because I have a property in a place called Bedford. So I'm from Bedford in the UK, so that did make me laugh! But what was it, $12 million in real estate, cars, the plane and the boat, which the story starts with. Has that all been taken away now? Is that right?

Nathaniel Rich: Yes, so I should have said, that's part of what Ernst and Young has been able to call back and of course, $12 million in assets, but that number has depreciated considerably because in part of the yacht and the private airplane had not been well maintained. Then also the assets of course are only worth where you can resell them for and anyone trying to sell this property is now faced with... The buyers will know that they have to get rid of it fast and so they're basically under priced as a result. So I think that $12 million is now closer to $8 million or $9 million. But all of that, she has officially now turned over to the creditor class.

Peter McCormack: Did the chihuahuas get their $100,000?

Nathaniel Rich: I don't believe so!

Peter McCormack: That did make me laugh. So what happens now? What do you expect going to happen now?

Nathaniel Rich: Well, there are at least four investigations by federal law enforcement agencies. The FBI seems to be the most robust, RCMP seems to be much less serious and there's at least two other countries that are investigating, and I have reason to believe one is Japan. So these will run its course. I think our best chance of getting into some kind of definitive answer is through the FBI investigation and that is the most thorough. We may understand more about where the money went.

The reckless trading of the funds doesn't account for all of it, that we know of. It might be that he recklessly traded away $200 million plus, but I think we only know that he did with something like $70 million or $80 million of it. So it's almost definitely unrecoverable. It's hard to imagine that it's sitting somewhere at this point or that any significant chunk of it is sitting somewhere and then meanwhile the creditors are waiting to get... They'll divide the money that Ernst and Young has been able to get back, something like $30-$35 million.

Peter McCormack: That's about what, like $1 in every $10?

Nathaniel Rich: Right exactly and it's a little more than 10% or close to 15%. But not all 76,000 people who lost money will have made a claim and in fact there's $70 million of it that seems to belong to a single creditor. I think there's a good chance for instance, that that creditor will not come forward and make a claim because you have to ask who is the person that puts $70 million on this exchange? I think there's a pretty good chance that it's some kind of a criminal entity.

So we've seen when other exchanges have gone bust for this reason or Liberty Reserve went bust, a lot of the major creditors don't come forward because they don't want to show their faces to law enforcement. So it might be that if you're just an ordinary person, as you said, someone who put way too much money on Quadriga, you might actually get a higher percentage of it back because the group of creditors might be significantly smaller than the group of people who actually lost the money.

Peter McCormack: But that itself is fascinating, that there's somebody there who can write off $70 million or has to write off $70million. Well the writing off $70 million is the loss, but I guess they're writing off $7-$10 million in recoverable funds.

Nathaniel Rich: Right, but it gets back to one of your original questions, which is if Gerry had lost all this money and he knew who his major clients were, that was because of their lack of any controls, he knew exactly who is investing huge amounts of money with him. Yes, you could imagine a situation where some drug cartels say has $70 million on the exchange and Gerry's starts to worry he's not going to be able to pay them back. So yes, the existence of this one whale, I think gives you more reason to think that he was afraid, not only for the exchange to collapse, but that someone was going to try to get revenge on him, if they didn't get their money back.

Peter McCormack: Well a $70 billion whale, who is potentially a drug cartel, is a high incentive to disappear.

Nathaniel Rich: Yes, absolutely!

Peter McCormack: See you're swinging me back again! You're adding a few more percent into the disappearance theory because I try to put myself in the same shoes, yeah, you're risking your life at that point.

Nathaniel Rich: So the most difficult thing to understand about what would seem to be the most plausible theory, which is that he fucked up and he lost some money. Not legitimately is not quite the right word, but he lost the money through non-nefarious reasons or at least reasons that he couldn't control and then tried to trade his way out of it is that the dollar amounts don't fully added this.

This was the biggest obstacle for me for the fuck up theory, which is that, okay, you lose $14 million in the Ether coding issue, you lose maybe another $5 million to a crooked third-party payment processor and you lose maybe another $10 million to a different one. Okay, so now you're down, $30 million out of $200 million or $250 million at that point, do you really start making like Hail Mary trades on Zcash to recover that $30 million?

It doesn't quite sense. So then you could say, okay, well maybe based on the shift in the market, if you lose the $14 million in Ether and then Ether spikes, maybe that $14 million now is something closer to $40 million or $50 million, you're getting closer, but it's still hard to imagine then squandering $150 million or whatever it is left. The scale doesn't quite add up to me.

It has been explained to me that some of these bets that he was doing, these margin bets, are enormously high risk and that you could risk losing a ton and especially if you double down on it, that you could get there and you could get to the point of, beginning with a hole of $30 million and then ending with a whole of $200 million.

Peter McCormack: But other exchanges have lost money and they've been quite open and honest with the customers and usually come up with a plan either to socialize the lost or to have some kind of long-term recoverable program, whether it be some token or some share of profits. But that's the standard MO. But then this isn't a standard person operating honestly.

Nathaniel Rich: Well he was honest about the Ether loss.

Peter McCormack: He was?

Nathaniel Rich: Yes, that was made public, but he said the Quadriga would absorb it from its profits. Fine, so then he maybe lost another $15 million or so through these other avenues. But yeah, it's not totally logical to me that even if you were starting to panic, that you would then risk so many more tens of millions of dollars on these other trades, rather than look for an easier solution as you said, to sort of socialize the loss in some way.

I'll add another wrinkle that I didn't write about in the piece, because it would've just got into this other realm of speculation, but there was a lot of evidence to suggest that Gerry owned a significant amount of Ether and that he got it early on, that he was either part of the pre-sale because he was working with Vitalik Buterin at the same workspace in Toronto. Furthermore, there are chat logs that were leaked in which he talks about buying an additional, large amount of Ether shortly after it went public.

So some of these online sleuths have basically put together that he owned something like, between $10 to $20 million in Ether is the suggestion. So you then also add that to the amount of money that he could've absorbed. So say Quadriga is down $20 million or $30 million, well if he's sitting on his own stash of $20 million, sure he'll do anything he can not to use his own funds to salvage his business, but at a certain point, if he's really fearful, you would think that would be an escape patch that he seems never to have used.

So that adds to the question of how plausible is it really that he did squander so much money or even that he felt the need to risk so much money.

Peter McCormack: Yes, it's so fascinating. Lastly, before we close out, what's happened with Michael Patryn. Is he talking? Is he under investigation?

Nathaniel Rich: Patryn seems to be under investigation. He told me as much I've communicated with him for the piece. He wouldn't speak on the phone, but I communicated with him through Telegram where he remains a very active participant of this public chat room Quadriga Uncovered, that's mainly composed of predators who've lost their money and are really upset about it, but also is visited from time to time by one of their lawyers.

It also I know is being monitored by journalists as well as law enforcement, from at least FBI and RCMP. So it's this very strange virtual realm, where not only the investigators and those being investigated, as well as the victims, are all are in this ongoing conversation and Patryn is a regular there under the name Chad, which is his most recent moniker. His general version of events, which he speaks about in the chat room and as well as in private chats has been that he was involved in a limited role with Quadriga up until 2016 when things really started to go off the rails.

He left then after a dispute with Gerry over the decision to try to list the company on the public stock exchange and he had no insight or involvement since then. That's essentially the line that he's toed. Of course, there's a lot of reasons to think he was much more heavily involved early on and founded it essentially, perhaps with Gerry as a front man. Patryn disputes that, but that was the more general perception.

So he thinks that Gerry is dead and he thinks that his version of events, Gerry was operating it on the up and up until about 2016 when Patryn left and then he started to do all this Ponzi scheme stuff. But he wouldn't talk about his own involvement in any of his past operation, some of which were the subjects of federal investigations in the U.S and his own record, as he served time in federal penitentiary in the U.S before being deported to Canada. So he essentially denies any claims and the version against him, that portrays him in an unfavorable light and continues to assert this narrative that exonerates him.

Peter McCormack: It's almost like these exchange operators need background checks.

Nathaniel Rich: Yeah! In fact, of course his identity was revealed during a background check that was conducted by a guy, Ryan Mueller, who I interviewed for the piece, who worked for a third party payment processor and it would seem the rare TPP that actually had a very serious background check, scrupulousness to it and Quadriga had approached them about working together and after Ryan did his own investigation of Patrick and Patrick's background, they declined to be involved with them.

Peter McCormack: I think the lesson from it all really is going back to what Trace Mayer said, "it's not your keys, not your Bitcoin." You really should not be trusting other people with your Bitcoin and you really should be holding your own private keys. I think that's the kind of the kind of summary for me. As an outsider, you're not a Bitcoiner, you're a journalist and you've come into this, what's your kind of summary of the whole thing? What do you make of it all?

Nathaniel Rich: Well I think it asks a larger question, which is to say that yes, I think certainly you shouldn't trust exchanges, but the premise of cryptocurrency, of Bitcoin, is that you can be outside of these structures that we've set up in society that have all of these problems that we know of central banks the politics, government, law enforcement, all the rest. I guess the question is, can you ever really be outside of it?

If it's not for sure, maybe here'll be no more exchanges in a few years. Maybe, the community will come to a consensus about it and say, "we can't have this loophole. It undermines the entire edifice." But then the question is, will there be some other kind of loophole that will come about to pray on. You have to be able to trade, for the cryptocurrency market to work. It seems to me I would defer to you about this, but there has to be some way of facilitating the kind of easy trading that is done on these exchanges and..

Peter McCormack: You also need price discovery,

Nathaniel Rich: Right, and you need there to be a way for people who aren't savvy about the technology to still use Bitcoin if you want it to expand and grow and to become more central in society. So I think the real question it raises, and I don't have the answer, but is the whole premise of Bitcoin that you can be outside or have cryptocurrency, that you can be in this decentralized system, is that an illusion?

Well, there always be some loophole that will undermine this utopian ideal and I don't know the answer from a technological or economic standpoint, but from a human standpoint, since I'm a writer and that's what I study, I would guess that yes, there will always be a vulnerability that could be exploited by people who want to. It might be a lot more difficult than building an exchange in the future, but I imagine that people will always find a way to screw it up.

Peter McCormack: Is there anything more in the story for you or are you done with it? Is there anything more in Bitcoin for you? Are you going down a rabbit hole of other things you think you want to report on or write about?

Nathaniel Rich: I don't know, it feels a little too early to tell. I think this story certainly is still evolving and that these investigations are ongoing. It may be that the findings are never made public. If they don't find anything that leads to some kind of indictment or they don't discover more money, it might be that these investigations are lead to a dead end.

So I'll certainly be following what happens with that. But yeah, there's nothing that... it's not like I want to investigate the next exchange that seems obviously to be a Ponzi scheme and I have found that there are a few that seem to be the next Quadriga in the works right now. But no, I think I came to it, not out of a desire to tell some story about cryptocurrency, but to tell a story about where we decided to put our faith and how this idea of, as guarded as we can be, I think we still open ourselves up and we still have vulnerabilities that we can never fully defend against and that's a story that I find interesting and it's one that you can tell pretty well I think through Quadriga, but it's certainly not exclusive to the world of cryptocurrency.

Peter McCormack: Well it's a fantastic article, I always find it interesting. It's in some ways more interesting when an outsider reports on something within industry and it's not like a clickbait piece. The articles you tend to get when the price is running up tend to be a little bit kind of crazy and all speculative and about crazy new money and people getting rich and when it comes down it seems to be about declaring the death of Bitcoin and they get a bit boring.

But I found yours was a very interesting and engaging piece because you came at it pretty objectively with an open mind. Yeah, it was really interesting, so congratulations on that! It's really good. Thank you for coming on as well. I think people would be really interested in this, especially following my interview with Jamie Bartlett about OneCoin. I think people will be interested in this. So I just want to say a big thank you. If people do want to follow your work Nathaniel, how do they track what you're doing and read other things that you've worked on?

Nathaniel Rich: I have a website, nathanielrich.com. I'm a novelist first really, I've written three novels and my most recent book is a narrative non-fiction book called Losing Earth about early history of climate change politics. But I tend to write narrative work fiction and non-fiction and so this story was too good to pass up. I especially like stories where there's some kind of moral tension and as you say, stories that resist clean resolutions. So this fit the bill for me!

Peter McCormack: Fantastic! Well listen, thanks for coming on, I wish you all the best in the future. Hopefully one day I'll get down to New Orleans, we can hang out and have a beer and if you need anything from me, if you do dip in the Bitcoin world again, if you've got any questions, you know you can reach out to me.

Nathaniel Rich: I appreciate that. I'm certainly more tentative than I even was now after reporting this piece. But I will be following closely and I appreciate your having me on your program.

Peter McCormack: No problem, take care!