Hi there guys, I posted this to /r/BitcoinCA and to /r/QuadrigaCX2. Because not all readers check those reddits, though, and because the below post is definitely relevant to all readers of this reddit, I wanted to share it here directly.
I recently saw some posts on /r/QuadrigaCX and /r/Buttcoin regarding clawbacks after this exchange insolvency. Basically, what was being suggested is that people who were able to withdraw from Quadriga may have those funds clawed back by the government so that Quadriga's assets could be more evenly distributed among those affected.
I recently lost about 122 ETH on Quadriga. I transferred about $20K worth of ETH to Quadriga to cash out. This ETH was immediately sold for $CAD, which I then tried to cash out by wire transfer. I had successful wire transfers in May 2018, totalling $1.4M CAD (after being an early adopter to ETH in Feb 2017).
A couple of weeks later, I noticed that the $20K wire transfer had been canceled, and the $CAD was deposited back to my Quadriga account. At this time, I purchased 122 ETH, and tried to get it off the exchange. These ETH were never deposited to my requested address, and are likely gone for good.
After reading about the potential clawbacks, I did some reading about Canadian bankruptcy laws. It seems like Quadriga has been run like a Ponzi scheme since at least Fall 2018. Although my 122 ETH are likely gone for good, I wanted to see what my liabilities were for the $1.4M that was withdrawn in May. Although losing $20K stings, having $1.4M clawed back would be disastrous. To try to find some piece of mind, I did some digging. I should mention that I am not a lawyer, and only have a layperson understanding of this field.
Firstly, I looked to see what the actual laws were. There is a very handy article which outlines the criteria that must be evident for a person who successfully withdrew from a Ponzi to potentially face clawbacks. They are:
-
1) The debtor was insolvent at the time of the withdrawal
-
2) The transaction took place during the applicable statutory review period, and
-
3) the transaction was taken with a view to giving that creditor a preference over other creditors as discussed in more detail below.
If any of these three factors are not valid, then a person who successfully withdrew crypto or $CAD from Quadriga has nothing to worry about from clawbacks. If, however, all three points are valid, then clawbacks may come into play.
In my case, I think it goes without saying that Quadriga is insolvent (and possibly has been since June 2017) As such, it's a given that criterion 1 was valid when I made my large withdrawal. Also, although I had no way of knowing in May that my withdrawal might be giving me preferential treatment over other users of Quadriga, it's possible that criterion 3 was also valid in May 2018. To determine my risk of having $1.4M clawed back, I tried to delve more into criterion 2.
The article I sourced above discusses what the appropriate lookback period is for different types of users of Quadriga. I believe that the "lookback period" is the same as the "statutory review period", which is the central aspect of criterion 2. This article suggests that:
The applicable lookback period will be three months from the initial bankruptcy event (being the date of bankruptcy, BIA proposal proceedings or CCAA proceedings, as applicable) if the creditor receiving the alleged preference was dealing at arm's length with the debtor, or one year from the initial bankruptcy event if the creditor receiving the alleged preference was not dealing at arm's length with the debtor. Related persons are deemed not to be dealing at arm's length with one another absent evidence to the contrary. With respect to unrelated persons, it is a question of fact whether they were dealing at arm's length at any particular point in time. Two parties will be deemed to be related if they are under common de jure control of the same entity or group of entities.
In connection with arm's length transfers, transactions that have the effect of giving a creditor a preference during the avoidance period are, in the absence of evidence to the contrary, presumed to have been made with a view to giving such creditor a preference. The transferee/creditor must establish that there was no dominant intention on the part of the debtor to prefer one creditor over another, based on an objective assessment of the debtor's circumstances at the time the debtor made the alleged preference.
In connection with non-arm's length transfers, the debtor's intention during the avoidance period is irrelevant - one only considers whether the impugned transaction had the effect of giving the transferee/creditor a preference over other creditors.
Clearly, there are two separate types of users of Quadriga: Arms Length and Non-Arms Length. At first I wasn't too sure what the definition of an "arms length transaction" was. Fortunately, I found this helpful definition:
An arm's length transaction is one in which the buyers and sellers of a product act independently and do not have any relationship to each other. The concept of an arm's length transaction assures that both parties in the deal are acting in their own self-interest and are not subject to any pressure or duress from the other party. It also assures third parties that there is no collusion between the buyer and seller.
My interpretation is that almost all users of Quadriga were arms length creditors. The only exceptions to this might be those who had a close relationship with the exchange, and may have been privy to the solvency issues or pending exit scam.
I believe that Quadriga filed for CCAA protection on Jan 31. Based on what I can tell, all withdrawals made after Oct 31, 2018 might be subject to clawbacks. Withdrawals made after Jan 31, 2018 by those who could have inside information (ie, not arms length) may be subject to clawbacks.
Although this was reassuring to me (as I wouldn't have to sell my house and all other assets to cover my $1.4M withdrawal), I felt it would be wise to post it here. To all those who withdrew significant amounts of value from Quadriga after Oct 31, it may be wise to contact a lawyer.
TLDR: If you took crypto or fiat out of Quadriga since Oct 31, 2018, you might have to pay that amount back.
No comments:
Post a Comment