The co-founder of defunct cryptocurrency exchange QuadrigaCX may lose hundreds of thousands of dollars’ worth of cash, gold and luxury items if he is unable to prove he obtained that wealth lawfully.
The B.C. Civil Forfeiture Office has filed an application for an “unexplained wealth order” – a controversial new legal tool in British Columbia – that could result in the forfeiture of $250,200 in cash, 45 gold bars, four luxury watches and several items of pricey jewellery by Michael Patryn.
Mr. Patryn helped launch QuadrigaCX, which was once Canada’s largest virtual currency trading platform, in 2013 alongside Gerald Cotten. The exchange collapsed into bankruptcy after 30-year-old Mr. Cotten died in December, 2018, from complications related to Crohn’s disease while on his honeymoon in India. Users were unable to access their funds after Mr. Cotten’s death, as he was the only person with the keys to the company’s cryptocurrency wallets.
Bankruptcy trustee Ernst & Young was able to recover only $46-million of the more than $300-million owed to thousands of creditors.
The Ontario Securities Commission later issued a report stating that Mr. Cotten ran the company like a Ponzi scheme and engaged in fraudulent trading that led to substantial losses for the exchange’s users. The investigation by the securities watchdog put to rest speculation that millions of dollars were stashed away in cryptocurrency wallets and could have still been recovered if only someone other than Mr. Cotten had known the passwords to access them.
The Globe previously reported that Mr. Patryn is a convicted felon who served time in the United States for his role in an online marketplace called Shadowcrew.com that trafficked in stolen credit card numbers and identities. At the time, he was a resident of California and went by the name Omar Dhanani.
Wednesday’s application for an unexplained wealth order is the third filed with the British Columbia Supreme Court since legislation was introduced last spring to make it easier for B.C. to seize residential properties or other valuables suspected of being purchased with the proceeds of crime.
In 2019, an independent panel on money laundering in real estate recommended the province adopt the legal instruments, which shift the burden of proving something was bought with legitimate funds onto the accused party regardless of whether they have faced a criminal prosecution. If the defendant is unable to disprove that an asset was purchased with ill-gotten gains, their property could be confiscated by the province’s Civil Forfeiture Office, which redistributes wealth to victim services and other social programs.
However, critics have argued the orders are an attempt by the province and police to avoid the higher burden of proof they would have to meet if they wanted to seize the same property in a criminal trial.
Mike Farnworth, B.C.’s Minister of Public Safety and Solicitor-General, called Wednesday’s application “a strong demonstration of our government’s commitment to take decisive action against criminals and organized crime.”
“While the fallout of cryptocurrency theft that leaves many victims in its wake is topical, what is even more timely is the recovery of these ill-gotten funds and converting them to community benefits in a public way,” Mr. Farnworth said in a statement Wednesday.
B.C.’s Director of Civil Forfeiture in British Columbia filed a claim in court against Mr. Patryn in June, 2023, to obtain the items seized from a safety deposit box belonging to him at a CIBC bank in Vancouver, along with any funds held in an account in his name.
The claim alleges the goods are the proceeds of unlawful activity, and that the RCMP determined that both Mr. Patryn and Mr. Cotten used QuadrigaCX customer funds to enrich themselves and make unauthorized trades, in addition to falsifying accounting records.
The allegations have not been proven in court.
Mr. Patryn previously told The Globe and Mail that he left the company in 2016 and that the fraud committed by his former business partner only happened afterward.
The RCMP launched an investigation into QuadrigaCX in January, 2019, after Mr. Cotten’s death. Chat records between him and Mr. Patryn obtained by investigators show the two of them discussing opening personal bank accounts to take possession of customer funds, how to protect safety deposit boxes from police seizure and artificially boosting and concealing trades on the platform, according to the civil claim. The chats, wherein they also allegedly discuss setting up Ponzi schemes, occurred in 2014 and 2015.
In addition, the two tracked customer funds that had been transferred to them and talked about “staging” Mr. Patryn’s public departure from QuadrigaCX, even though he remained privately involved, the court documents allege.
In 2021, the RCMP seized the cash, which was separated into five bundles and bound with elastic bands, gold, watches and jewellery, from the safety deposit box in Vancouver. They also found cheques bearing Mr. Patryn’s name, birth certificates for his former identities Omar Dhanani and Omar Patryn, name change certificates, a .45 calibre pistol and two magazines loaded with bullets.
The head spokespeople for the Mounties in B.C. did not immediately respond to questions Wednesday afternoon about what happened to their investigation of Mr. Patryn.
A lawyer listed as representing Mr. Patryn late last year did not immediately respond to a request for comment on the province’s pursuit of the unexplained wealth order.
In a response filed in October to the civil claim, Mr. Patryn acknowledged he owned the money, gold, watches and jewellery, but denied they were the proceeds of illegal activity. He also denied participating in any fraudulent activities at QuadrigaCX.
Mr. Patryn’s last known location is Thailand, according to court documents.
Alexandra Posadzki
Joe Castaldo
Mike Hager