Lawyers vie to represent creditors in QuadrigaCX debacle
115,000 clients owed as much as $260M in cash and cryptocurrency after founder's death
More than a dozen lawyers converged on a Halifax courtroom Thursday to make their pitches to represent creditors owed $260 million in the QuadrigaCX cryptocurrency debacle.
In all, three teams of lawyers have applied to the Nova Scotia Supreme Court to represent 115,000 cryptocurrency traders owed $70 million in cash and $190 million in Bitcoins and other digital assets.
Justice Michael Wood said he would issue a written decision within a week.
The law firms selected as so-called representative counsel will work closely with affected QuadrigaCX users, as a court-appointed monitor continues to look for the money they are owed.
The Vancouver-based exchange was shut down Jan. 28 following the sudden death of its CEO and sole director, 30-year-old Gerald Cotten. He had led his five-year-old business from his home north of Halifax.
Court documents say the $190 million in missing cryptocurrency is locked in offline digital wallets — but they are beyond the reach of the company because Cotten was the only person who had the encrypted pass codes.
At one point during Thursday's hearing, a lawyer representing the monitor, Ernst and Young, said lawyers' fees at this stage should be capped at $100,000.
Under a court order that granted QuadrigaCX protection from its creditors on Feb. 5, the company is required to pay all legal fees.
Maurice Chiasson, a lawyer representing the embattled virtual company, admitted QuadrigaCX is already running out of money.
"As of today, we don't have anything," he said, later adding that more money is expected to be made available from Cotten's widow, Jennifer Robertson.
Each of the competing teams of lawyers has representatives from one firm in Toronto and one in Halifax.
The first to file an application was Bennett Jones of Toronto and Halifax-based McInnes Cooper. That team has already signed up 181 users who are owed about $22 million.
McInnes Cooper lawyer Benjamin Durnford said one of the key roles of the representative counsel will be communicating with affected users scattered around the world.
He said many of those users communicate through online chat sites, such as Reddit, where anonymous participants often trade in rumour and innuendo.
"This is a case that must be litigated in the courtroom, not the chat room," he said, taking aim at a law firm that has suggested users could be reached through online sites like Reddit and Telegram.
Bennett Jones lawyer Raj Sahni also said that was a bad idea.
"The use of chat rooms as a communication forum is inappropriate," he told the court, suggesting these sites are rife with mischief and those promoting their own agendas.
"They are not a secure forum."
The law firms Miller Thomson in Toronto and Cox & Palmer in Halifax represent 252 creditors owed about $15 million.
Cox & Palmer partner Gavin MacDonald said the use of chat rooms was needed to "replace misinformation with fact."
"These chat rooms are a fact — people are using them extensively," he told the court. "Leaving it alone to fester is ... a bad idea."
Meanwhile, Toronto-based Osler, Hoskin & Harcourt and Halifax-based Patterson Law represent 134 affected users owed about $19 million.
That team told the judge it had an advantage because one of its lawyers is considered an expert in cryptocurrencies.
"We don't need to familiarize ourselves with cryptocurrency," said lawyer Evan Thomas, who specializes in blockchain technologies. "We already have that."
CBC reporter Jack Julian live tweeted from court. Those on mobile devices can read here.