Coinbase CEO: We Don't Believe QuadrigaCX Did an Exit Scam

Francisco Memoria

According to the CEO of Coinbase, the largest US-based cryptocurrency exchange, the embattled Canadian exchange QuadrigaCX could have used the death of its CEO Gerald Cotten as a way to cut its losses, after running fractional since 2017. Notably, he noted he doesn't believe it pulled an exit scam.

According to a series of tweets Brian Armstrong published, in which he emphasized this is a guess that should be taken as “pure speculation,” he revealed Coinbase has made its own internal research into the case, and initially found that QuadrigaCX had funds in cold storage being controlled manually, that were moved in early 2018.

Armstrong noted the exchange is one of the oldest in existence, as it has been running since 2013. Per his words, if they “planned an exit scam, it likely would have been timed better.” The CEO noted that QuadrigaCX suffered a “multimillion dollar bug in June 2017,” before things went wrong.

This, Armstrong added, is when movements from the exchange’s cold storage wallets started occurring.

While the Canadian exchange could, presumably, be attempting to escape its situation the 2018 bear market, that saw the price of most cryptocurrencies drop by 85%, could have seen the liquidity of its platform dry up.

Per Armstrong, the “sequence of events suggests this was a mismanagement with later attempt to cover for it.” He added:

The CEO of Coinbase added that when Gerald Cotten passed away, the exchange could’ve taken some time to debate the situation, and used it to claim it no longer had access to its money. Armstrong finished by noting that while the story isn’t perfect “it does seem plausible.”

It’s worth noting that other researchers have questioned whether QuadrigaCX ever had funds in cold storage to begin with. Moreover the researcher, MyCrypto’s Taylor Monahan, found suspicious transactions from QuadrigaCX to exchanges like Poloniex, Bitfinex, and Shapeshift, suggesting the funds could’ve been liquidated.

Monahan has urged caution regarding the use of data to jump to conclusions. Armstrong has also noted that as “the case unfolds we might find out we were incorrect.”

QuadrigaCX’s Situation

As CryptoGlobe has been covering, QuadrigaCX claims to have been locked out of $145 million in cryptocurrencies stored in cold wallets after Cotten passed away. His wife, Jennifer Robertson, has filed an affidavit where she reveals the CEO single-handedly managed the exchange’s transactions through his laptop.

Since then, the Supreme Court of Nova Scotia has granted QuadrigaCX creditor protection, and appointed Canadian law firms Miller Thomson and Cox & Palmer to represent its customers in the upcoming proceedings.

The cryptocurrency exchange claims to have run out of funds, and has recently transferred the remaining cryptocurrencies it had in its hot wallets to Ernst & Young, an auditor monitoring the case’s proceedings.

The exchange’s downfall has notably cost at least one cryptocurrency enthusiast his $420,000 life savings.

Coinbase Doesn’t Want You to Get Scammed on Telegram

On Friday (April 19), cryptoasset exchange Coinbase's security team explained how various "threat actors" are trying to use Coinbase's brand to commit scams on messaging platform Telegram. 

Telegram is a free cloud-based messaging app with the ability to make voice/video calls. It is available as a web app, a mobile app (OS and Android), and a desktop app (MacOS, Windows, and Linux). In recent years, it has become the messaging platform of choice for cryptocurrency traders/investors, developers, and entrepreneurs for various reasons, such as the ability to create price bots.

In a long, detailed article published on Friday, Matt Muller, Head of Security Operations at Coinbase, started by pointing out that "Coinbase does not provide support through Telegram, nor do we have any authorized groups or channels." (In fact, "Coinbase has no official presence on Telegram," and "any usage of the Coinbase logo or brand on Telegram" should be considered a scam.)

He then went on to say that Coinbase's security team has been following the activities of "several threat actors attempting to leverage the Coinbase brand on Telegram for purposes ranging from crypto scams to account takeovers." 

In order to help users of Coinbase and other exchanges recognize "the signs that they may be talking to a scammer," Muller outlined some of the most common scam techniques on Telegram.

  • Employment Scams"Scammers on Telegram impersonate Coinbase recruiters and executives with fake career opportunities. These scams prey on job seekers, soliciting payment for training materials, mining hardware, or in some cases providing stolen financials for the purposes of money laundering. These job offers will appear very legitimate, with forged offer letters and seemingly astute interview questions. Coinbase recruiters will never contact job seekers via Telegram."
  • Giveaway Scams: "Impersonations of our executives and brand to perpetuate giveaway scams are becoming increasingly common on Telegram. One channel in particular, titled simply Coinbase, advertises a new giveaway scam almost daily."
  • Load-up Scams: "Telegram frequently hosts scammers advertising the buying or 'loading' of accounts with high limits. These scammers ask to access your Coinbase account, so they can use your verified limits to buy digital currency. While they claim to split profits with the account holder, in actuality, they use stolen credit cards and bank accounts, leaving you responsible for facilitating a financial crime. When the legitimate card or account holder reverses payments, you will be responsible for any account delinquencies caused by the fraudulent bank reversals. In many cases, the scammer will lock you out of your account, use your own payment methods without consent and steal any available digital currency."
  • Tech Support Scams: "Scams impersonating customer support take many shapes and sizes... Scammers will impersonate Coinbase or Coinbase employees, asking you to take action that results in theft of digital currency. Some scams involve fake promo offers. Many of these scams ask for remote access to your computer, something Coinbase personnel will never ask for... In other situations, the scammers pressure you into 'upgrading' or securing your Coinbase account by sending digital currency to their external address."
  • Coin Listing and ICO Scams: "Scammers on Telegram often approach project developers soliciting payment for asset listings on Coinbase and other digital asset exchanges. In addition, scams promising investment bonuses on new ICO listings are prolific."

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