Canadian Bank Wins Against Crypto Exchange QuadrigaCX in Court

A Canadian court is taking charge of about $20 million USD claimed by QuadrigaCX crypto exchange due to a banking dispute over the funds’ provenance.

November 14, 2018 | AtoZ Markets – The Canadian Imperial Bank of Commerce (CIBC) and a Vancouver-based cryptocurrency exchange, QuadrigaCX have had its disputed funds worth approximately CAD $25.7 million and USD $69,000 handed into the custody of the Ontario Superior Court. This is in accordance with a court order.

Real Owner of QuadrigaCX’s Disputed Funds Unverified

As per Canadian newspaper, Globe and Mail, the crypto exchange firm, QuadrigaCX have had difficulties accessing $16.3 million of its funds since January after CIBC froze five accounts that belong to Costodian Inc., the exchange’s payment processor, and that of its owner, Jose Reyes. The bank purportedly froze these accounts as it was unable to verify the identities of the funds’ owners.

Subsequently, CIBC requested the court to withhold the disputed funds and determine whether they rightfully belong to QuadrigaCX, Costodian, or the 388 customers who had made the deposits.

However, QuadrigaCX responded, telling the court that the funds were frozen mistakenly and also claimed to be the undisputed owner of the greater part of the funds.

CIBC to Transfer Frozen Funds to the Court

Hence, in the recent court file, Judge Glenn Hainey of the previously mentioned Court ruled in favour of the bank, saying that the funds’ owner is not clearly established.

Furthermore, the frozen funds in question are now being required to be transferred to the Accountant of the Superior Court until it can establish who the rightful owner is among the claimants. A financial crime lawyer, Christine Duhaime who is is not involved in the case explained:

“The Court holds the disputed funds in trust only until the entitlement to the funds has been lawfully determined and competing claims are resolved.”

The liability of the funds, however, will be maintained by the bank, given that CIBC on its own initiative froze the funds. The Judge has also specified that the order was an ‘interpleader order,’ which occurs when two or more parties claim ownership of the same disputed funds. 

In this case, the dispute lies with who the owner of the funds is that is about $20 million USD. The parties in question are the QuadrigaCX crypto exchange and its payment processor Costodian.

QuadrigaCX Customers Can Apply to Have Their Funds Released

In the meantime, the CEO of Quadriga, Gerald Cotten said that the case has resulted in delays for a “small fraction” of the exchange’s 350,000 customers. Cotten further added:

“There are currently delays for some specific withdrawal options, particularly due to the fact that CIBC is withholding tens of millions of dollars that belong to us that were in an account of one of our payment processors.”

On the bright side, QuadrigaCX’s users can apply for their respective funds to be released by the court. However, in order to do so, they will have to reveal their identities. Duhaime explained:

“The customers of Quadriga who bought digital currencies with them during the time in question, can make an application for the return of funds that they believe are theirs. That includes Quadriga, who can bring an application to claim the funds.”

On the downside, customer’s identities may be revealed and this could potentially have negative tax consequences for some individuals. At the moment, the court is yet to make any ruling on whether CIBC froze the funds wrongfully or not. Nevertheless, the dispute is expected to end before the holiday season and before trading activity ramps up.

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