Failed crypto trading platform QuadrigaCX was essentially a Ponzi scheme — that’s the conclusion of an investigative report from the Ontario Securities Commission (OSC).

In an unusual move, the OSC released a report detailing the results of its investigation into the downfall of QuadrigaCX, which finds that the firm collapsed due to “a fraud committed by Quadriga’s co-founder and CEO Gerald Cotten.”

According to the report, speculation that the $169 million lost by QuadrigaCX clients stemmed from Cotten’s death — which left the trading platform’s assets inaccessible, since Cotten was the only person with the necessary login credentials — is false.

In fact, the OSC found that the assets were lost or misappropriated by Cotten before his death.

“The evidence demonstrates that most of the $169 million asset shortfall resulted from Cotten’s fraudulent conduct, which took several forms,” the report said.

Most of the losses — approximately $115 million worth — “arose from Cotten’s fraudulent trading on the Quadriga platform,” the investigation found.

The report said that Cotten lost another $28 million trading clients’ assets on external cryptoasset trading platforms without authorization, and that he “misappropriated millions in client assets to fund his lifestyle.”

Ultimately, the report concluded that Quadriga operated like a Ponzi scheme, “[it] had almost no assets left and was operating like a revolving door — new client deposits were immediately re-routed to fund other clients’ withdrawals.”

The report reflected the outcome of a 10-month investigation by a multi-disciplinary team of OSC enforcement staff, who “analyzed trading and blockchain data, interviewed key witnesses and collaborated with numerous regulatory bodies in Canada and abroad.”

The findings in the report have not been proven in court, or before a regulatory hearing panel.

According to the report, the actions uncovered by the OSC’s investigation would likely have produced an enforcement action against Cotten and the firm — but that’s not practical in this case, given that Cotten is dead and the company is bankrupt.

The OSC said it decided to release its investigative report into the case “to help investors understand what happened to Quadriga and hopefully prevent this type of situation from recurring.”

“While public release of an investigative report is rare, we believe the tens of thousands of Ontarians who entrusted Quadriga with their money and crypto assets deserve to know what happened,” said Jeff Kehoe, director of enforcement at the OSC, in a statement.

Ordinarily, OSC investigations are kept confidential. But in this case, OSC staff sought approval from a hearing panel to release its report. Following a confidential hearing, the panel authorized the report’s release.

In addition to tracing the money lost at Quadriga, the report also concluded that a lack of both internal and external oversight enabled the fraud.

The report said that Cotten traded over a billion dollars worth of assets and over five million crypto asset units.

“He ran the business as he saw fit, with no proper system of internal oversight or controls or proper books and records,” the OSC said.

The firm also wasn’t registered with regulators, or subject to their oversight, and there was no meaningful disclosure to its clients about how their assets were handled, the report found.

“To the contrary, Quadriga provided false assurances about asset storage. Clients had no means of verifying these claims or obtaining meaningful information about the handling of their assets. This lack of transparency also facilitated Cotten’s fraud,” the report said.

“The information presented in this report highlights the unique risks that can arise when using crypto asset trading platforms. These risks are magnified when platforms trading securities and derivatives do not register with regulators and do not disclose critical information about their practices,” Kehoe said.

The report stressed that the misconduct uncovered at Quadriga doesn’t apply to the crypto industry generally.

“Properly conducted, crypto asset trading is a legitimate and important component of our capital markets,” it said. “We remain committed to working with this industry to foster innovation.”