Canadian Court Seizes Control Of Quadriga Funds Frozen By CIBC


The ongoing legal dispute between the QuadrigaCX (Quadriga) and Canadian Imperial Bank of Commerce (CIBC) took another turn as Judge Glenn Hainey of the Ontario Superior Court of Justice decided that the Canadian court will take the control over the disputed $26 million CAD (~19.83 million USD).

The legal dispute is about control over the funds in an account controlled by Quadriga’s payment processor.

On one end, the Canadian exchange’s payment processor and its owner claim that the funds partially belong to the company and its owner and that part belongs to Quadriga. On the other end, Quadriga states that the funds entirely belong to the exchange.

As such, both Quadriga and its payment processor lay claim to the funds, and therefore, the Canadian court decided to grant the interpleader order on November 9, 2018.

Interpleader order granted by the court

Interpleader order is issued when more than one party claims the funds, therefore, the judge issues an order by which the court temporarily claims the control of the funds in question, until the case is resolved.

Since both Quadriga and its payment processor claim that they have the right to control the $26 million CAD and $69,000 USD, combined worth roughly $20 million USD, funds will be kept safe by the government.

However, the funds will not be immediately transferred to the court’s account but will remain in a frozen account at CIBC since the bank froze the funds on their own initiative.

The financial crime lawyer and managing partner of Toronto and Vancouver- based firm, Duhaime Law, Christine Duhaime, explained that the next step which will likely come to pass is for CIBC to transfer funds to the Court’s account. After the transfer, all who claim the funds can do so officially, including individuals who exchanged their fiat to buy cryptocurrencies on Quadriga, and the exchange itself.

No ruling yet on ownership of funds

Judge Heiney hasn’t ruled yet if the CIBC’s decision to freeze accounts in question was the right one since no official hearing has taken place yet but Gerald Cotten, the CEO and the Founder of Quadriga, declared his satisfaction with the fact that things are finally moving forward.

Another party, which can also be satisfied with things moving forward are Quadriga’s clients affected by the whole freezing incident, as they now have the right to file the legal claim for the money.

However, Duhaime, who is neutral in the case, stated that the bank did deviate from standard procedures of de-risking accounts due to the Anti-Money Laundering (AML) policy, as usually, they give their clients a 30-day notice to find an alternative banking solution.

She went on to state that, in case of cryptocurrency exchanges, that timeframe is sometimes extended to 60-120 days due to the young nature of the business, but didn’t speculate on what was the background of the bank’s decision to bypass that practice.

“[Banks] make de-risking decisions all the time based on the client behind the client,” she also said, continuing to clarify how that may turn out to be important as some further evidence about “behind the curtain” activities may be presented to the court as the lawsuit continues.

Offensive speculations and conspiracy

As previously reported, Cotten described the allegations as being highly offensive speculations against his trading platform and himself, as well as against their payment processor, Costodian Inc., Billerfly along with its owner, Jose Reyes.

The CEO of Quadriga even went further to say that Canadian banks may be conspiring against crypto-related businesses in the country. Nevertheless, the legal battle is reported to be affecting the exchange’s business results because some users have been emptying their Quadriga wallets due to the uncertainty of the situation.

We cannot rule out anything at this point, but we can say that this case will be interesting to follow as it may provide the precedent on how banks should handle problems with their crypto-related business clients in the future.

Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your own research and/or consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.

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