Part II: The Co-Founder

Hi, I'm Dr. Mary Claire Haver. If you're ready for honest conversations about what it takes to thrive in midlife and to maximize your health, your power, your purpose, then my new podcast UnPost is here for you. Join me and expert guests every week as we tackle what really matters in the second half of life. Make sure you never miss an episode by following UnPost with Dr. Mary Claire Haver on Amazon Music. Just open the app, hit Follow, and let's start living UnPost together. How old are you, man? I'm 25. And let me paint the picture. Mr. Cotton looks probably exactly what you think an internet genius would look like. Are we hanging out with Mark Zuckerberg right now? Was that what you're talking about? Unfortunately not. The audio you're hearing comes from a podcast called True Bromance. It was hosted by a couple of guys from Vancouver who usually just interviewed their friends or anybody who was doing something interesting around town. In March of 2014, their guest was a 25-year-old entrepreneur by the name of Gerald Cotton who just a few months earlier had launched a Bitcoin exchange. Our exchange launched on December 26th. That's quadriga, right? Yeah, that's quadriga. In the last episode, I told you about Jerry's death or his alleged death in India in 2018. I told you that before he died, Jerry was running quadriga all by himself from his personal laptop. I also told you about his customers who lost $215 million when the exchange folded. But that was the end of quadriga. In this episode, I want to tell you about the beginning. I'm Aaron Lammer, welcome to ExitScam, a podcast about a mysterious death and a missing fortune. This is part two, The Co-Founder. Now the CEO of one of Canada's biggest cryptocurrency exchanges died while he was on a trip to India. Neighbors on the Kalona Street where Gerald Cotton owned a home are also stunned. He was the CEO of Quadriga CX. If you want to buy Bitcoins, I would recommend just going to my site, obviously. So quadrigacX.com, a complicated name I don't know. In Quadriga's early days, the company wasn't just run off of Jerry's MacBook. There's a modest startup with an office in Vancouver's Gas Town neighborhood and a small team of employees. So now, how many employees do you have at Quadriga right now? Right now we have about five, okay, me and then like programmers and a few other people who help out with things like compliance. Jerry also had a co-founder, but you'll notice he's not very excited to talk about him. And how many partners do you have in owning his business? But Jerry and his anonymous friend had good timing. When they founded Quadriga, Bitcoin wasn't quite new, but the price had just gone above a thousand bucks for the first time. Some early investors had gotten rich, so regular people were starting to become interested. The typical Bitcoin user is probably not what you're imagining, right? I mean, with my business, I've met a lot of my clients and it ranges from 18-year-old college kids all the way up to 75-year-old grandmas who think it's cool to buy a few bitcoins. Yeah, yeah. But for Jerry, Bitcoin was more than just something to invest in. It was a whole new mindset. It's interesting because Bitcoin itself is not an entity, so it's not like we're actually promoting a business per se. We're kind of promoting a new way of thinking of how money works. Instead of using traditional currency, which is basically antiquity, antiquity. Yeah. So, to enlighten Canadians on this new, better kind of money, and to hopefully drum up some business while they were at it, Quadriga sponsored local Bitcoin conventions. And Jerry became one of the directors of the Vancouver Bitcoin Co-op, which is basically a nonprofit that works to promote Bitcoin. Every Monday night, we actually have our Bitcoin Co-op meeting in our office in Gaston. Yeah. So, we've had times when 50 people show up and everyone's just interested in Bitcoin. All were welcome. And while you were there, Jerry would sell you Bitcoin on the spot. Quadriga also announced plans to install Bitcoin ATMs, businesses around Vancouver. It's like a Bitcoin vending machine in a way. Go up, put some cash in, you scan your QR code, which is basically for your Bitcoin wallet. Yeah. And within a few seconds, you have the coins in your wallet. Oh, cool. There's a great video that's still online of Jerry showing a friend's young daughter, how to use one of Quadriga's Bitcoin ATMs. Okay, so hit the start button. Okay, now scan the QR code, hold that up to there. Done. Now your wallet's ready. Most of Jerry's social world revolved around Bitcoin. I first met Jerry in a Bitcoin meetup. This is Michael Perklin. He's a Bitcoin security expert. Back then, this must have been 2013 or 2014 being a regular in the Bitcoin scene in Toronto back then. I got to know most of the people and Jerry was a new face. And what Perklin my ears up was, he was telling another group of people at this meetup about his Bitcoin exchange. And that struck me as interesting because at the time, there was only one Bitcoin exchange. So I gravitated towards that conversation, introduced myself, and that's how we met. What were your early impressions of him? My early impressions of Jerry were he was careful, reserved, professional, and humble. He had a way of talking where it was clear he was thinking about each of his words before he was saying them, something that you typically see with like, I don't know, a politician or something like that. He definitely knew enough about Bitcoin that he wasn't like a marketing guy who's just repeating the Bitcoin headlines. Jerry made a good spokesperson for Quadriga. It was just a couple years out of business school and he looked even younger than he was with wavy reddish blonde hair, glasses. It was a bit socially awkward, but he had a strange charisma. People like Jerry, he reminded them of something. Jerry was what a normal person thought a tech genius was supposed to be like. Somebody who could change the world or at least get rich. Jerry made people feel like if they bought Bitcoin from him, maybe they could get rich too. But a year after launch, Jerry and his co-workers weren't making much money yet. In fact, they were losing it. Between November 2014 and January 2015, Quadriga had operating costs of $90,000 on a revenue of only $22,000. They were basically doing the business of an unsuccessful subway franchise. Bitcoin exchanges like Quadriga earn only a small percentage when somebody buys or sells Bitcoin. And not enough people were doing that yet. But soon Quadriga caught a lucky break. Their main competitor went out of business. CA Vertex, which until then had been the top Bitcoin exchange in Canada, announced suddenly that it had been hacked and was shutting down. So practically overnight, Quadriga jumped to first place. Jerry happened to be a guest at a conference in Toronto the week it happened. So you know, there's a reason Gerald why you are now Canada's largest Bitcoin exchange. Do you care to tell the story? What happened to the former largest Bitcoin exchange? They just cited a variety of reasons, banking troubles, legal troubles. But as a result of them shutting down, it's been great for me. Jerry and his team were barely getting started and already they had the biggest Bitcoin exchange in the country. Now they just needed to figure out how to turn a profit. This is Free Range with Von Miller, the podcast where I step outside the lines and I take you with me. Each week we're talking everything from the biggest stories around the league to the biggest stories off the field. This isn't your average sports podcast. This is Game meets Culture, locker room meets living room, and no topic is off limits. So if you're in a good conversation that ruffles a few failures, join me every Wednesday and follow Free Range with Von Miller everywhere you get your podcast. Remember Jerry's mysterious co-founder? The partner he didn't want to talk about in that interview, "And how many partners do you have in this in owning his business?" "I have one partner, basically we share the business, and yeah there's the employees, but employees just want like the. " Jerry won't say his name, so I will. His co-founder was a guy named Michael Pattern. Jerry wasn't just evasive about Mike in interviews. He also kept Mike's name out of Quadriga's early public documents. And all press releases Jerry alone was listed as Quadriga's founder, CEO, and director. But Quadriga was Mike's company just as much as it was Jerry's. And Mike wasn't as keen on keeping himself hidden as Jerry was. After a couple years in business, Mike gave an interview about Quadriga to a group from a co-working space called Decentral Vancouver. "I guess tonight is Michael Giger from Quadriga, one of our sponsors, and I guess we're going to do a little Q&A session with you, if that's correct." "That's good?" "I'm not really familiar with the history of the company, so can you tell us a little bit about how long it's been around and why you created it?" "Sure, well, in mid-2013, when I decided to get more involved with Bitcoin, the only exchange of notes in Canada was Vertex, data monopoly, which many believes they were using. So the co-founder Gerald and I believed that we could do better, and Quadriga was born." Mike was five years older than Jerry. He was more worldly and projected a macho self-confidence. He practiced Brazilian jujitsu and had bulging tattooed biceps. He claimed that he'd fought as a professional MMA fighter and won millions of dollars in poker tournaments. You can find pictures of him online, driving Lamborghini's and posing next to tigers. "What are you talking about yourself?" When Mike introduced himself at Bitcoin Meetups, he told some people he was from India, others that he was from Italy, but he told everybody who would listen that he was a serial entrepreneur. With vast experience in digital currencies. "Sure, I've been working with digital currencies since about 2003. I've operated numerous exchanges, merchant platforms, casinos, provided advisory services with respect to growth and development of other such companies. I've been very, very involved with digital currencies for the better part of my adult life." Jerry and Mike made an odd couple. People who met them at Bitcoin co-op meetings said Jerry acted overly deferential to Mike. Sort of like his nerdy little brother. Some of those people wondered if Mike, not Jerry, was really the one in charge at Quateriga. Jerry may have been the spokesman, but Mike was the businessman. And as a businessman, he wasn't happy with all the money Quateriga was losing. So he came up with a plan to turn things around. He wanted to take the company public. Here's Jerry making the announcement at a conference in Toronto. The big announcement is we have announced that Quateriga CX will be going public. If that sounds ambitious, it's probably because it was. Not only was Quateriga in the red, with no path to profitability. No Bitcoin exchange anywhere in the world had ever gone public before. Mike hired a Vancouver businessman to raise money. And for a while, everything seemed to be on track. But in early 2016, the whole thing fell apart. And not only did Quateriga's bid to go public fail, it ripped the company in half. Mike and Jerry had a blowout mega fight, and Mike left the company. And then most of Quateriga's board of directors quit, leaving Jerry completely in charge. There was a lot of finger pointing afterwards. Mike sued the businessman he'd hired, claiming the poor quality of his work was responsible. But Mike also blamed Jerry. He said Jerry had suddenly decided to halt the listing process because it was too much work. But to hear some people tell it, there may have been another reason Quateriga never went public. It was probably the same reason Jerry wouldn't say Mike's name in that interview. And why on paper, Jerry was listed as Quateriga's only founder. It was a rumor. The rumor that was spreading around the Canadian Bitcoin industry. The rumor was that Michael Patron wasn't really Michael Patron. And that rumor was true. Michael Patron had changed his name twice. He used to be Omar Patron, and before that, Omar Denani, and Omar Denani had some dark secrets. Omar was born in Canada in 1983. When he was a kid, he moved with his family to Southern California, a town called Fountain Valley. Omar was into computers, and in the early 2000s, when he was in his late teens, he joined a ring of cyber thieves that sold stolen identities and credit card numbers. It was called Shadow Crew. On the Shadow Crew forums, Omar went by the screen name, Volir, which is French for thief. There's been a lot of talk about how Shadow Crew was basically the eBay of cybercrime. That was, that was my screen name, Gollum Fun. This is Brett Johnson. He built and ran Shadow Crew. It's kind of like a criminal field of dreams, if you build it, they will come. So we were the first website. The first website of his time. It was just word of mouth. You know, we didn't have Reddit or 4chan or anything like that back then. And at one point, I think we had a million hits a week. Volir aka Omar was one of Shadow Crew's money launders. A lot of members were using Egold, and Egold is that precursor to Bitcoin, to cryptocurrency. And Shadow Crew's hackers wanted to cash out the profits they made, selling stolen identities. They needed someone to convert their dirty Egold into clean money they could spend in the real world. What Omar did was he starts saying, "I can cash out your Egold." For a 10% fee, Omar would exchange Egold for a prepaid debit card. In 2004, Omar bragged in a chat room that he was laundering between 40 and $100,000 a week in Egold. Pretty good. But here's the bad news. The United States Secret Service was listening in on that chat room. We were intercepting text messages from the Secret Service about them investigating Shadow Crew. When the agent stormed in on 20-year-old Omar at his parents house, they found a numerous eighties in the driveway and a bunch of Western Union money orders stuffed in a closet. Omar pleaded guilty to one count of conspiracy to transfer identification documents. Was given 18 months in a maximum security prison. His release from jail in May 2007 was deported by the United States. He moved to Canada. Omar changed his name to Mike, but besides that, not much was different. He went right back to his old hustle. This time, he used a newer digital currency called Liberty Reserve, which was popular with cyber criminals and drug cartels. Mike bought Liberty Reserve in bulk and sold it through a website he'd set up called Midas Gold. For the next five years, $18.4 million flowed through his Liberty Reserve accounts. But in 2013, Liberty Reserve was shut down. Today we announced charges against Liberty Reserve who, for years, have operated one of the world's most widely used digital currencies. That's former US Attorney, Preet Bharara, announcing that the Justice Department had rated the offices of Liberty Reserve in Costa Rica. What may be the largest international money laundering case ever brought by the United States? Mike himself wasn't charged this time, but authorities seized Midas Gold's website. Not a Liberty Reserve he had on hand became worthless. It was only six months later, in December 2013, that 31-year-old Michael Patron launched the Quadriga with 25-year-old Gerald Cotton. The rest was history. The first time I heard the name Michael Patron, it was in the same breath that I also heard Omar Denani, his alter ego. This is Michael Perklin again. He is the Bitcoin security expert who met Jerry at the meet-up. He ended up becoming friends. He introduced himself as the CEO of Quadriga. I never found that weird at all until years later I heard allegations that there was somebody else, Michael Patron or Omar Denani, who was the CEO of Quadriga. I remember asking him about that, actually it was one night when he was over at my place playing board games, so it's like, "Hey, Cher, I got to ask you, you're the CEO, right? Yep, I heard that there's this guy Omar, that he's the CEO, at least somebody from Vancouver mentioned to me that he's telling people in Vancouver that he's the CEO. What's up with that?" "Oh, well, he was definitely more involved in the earlier days, but no, I'm the CEO. He's no longer involved in the company." In 2019, after Jerry's alleged death was announced, and Quadriga customers learned that their $215 million had disappeared. It didn't take long for those customers to start asking about Mike. What had been an open secret in the Canadian Bitcoin industry became public knowledge when reporters found the name-change records that proved Michael Patron from Quadriga used to be Omar Patron from Midas Gold and before that Omar Denani from Shadok. They also found Omar's mugshot, and if you compare it to a photo of Mike, it's pretty clear that they're the same person. So for Quadriga's customers, Mike instantly became a suspect. They wondered, "What if Mike had been the secret mastermind behind Quadriga, the whole time?" Because to them, Jerry didn't really seem like the kind of guy who could have stolen their $215 million, but Mike did. Mike knew how to launder money and change his name, so maybe he helped or even forced Jerry to steal their Bitcoin and adopt a new identity. But when reporters tracked Mike down, he said he found out about Jerry's death the same way everyone else did from the internet. Mike said he'd been living in Saigon and had barely spoken to Jerry since he quit Quadriga all the way back in 2016. But when he was pressed on other points, Mike was evasive. Despite all the evidence that proves he and Omar Denani are the same person, Mike denied it to reporters. He also tried to downplay his role at Quadriga. He said he was just an advisor, not one of the founders. And he refused to say how he and Jerry had first come to know each other. He'd only say that they met online around five years ago, which would have been when they were starting Quadriga together. But we know now that that's not true. Mike and Jerry went back a lot further than five years. When the U.S. Justice Department busted Liberty Reserve in 2013, they seized the domains of all the websites that sold it, including Michael Patron's site, might have scalded. The evidence for the case has been online for years. There are records for all the websites that sold Liberty Reserve. How much of it moved through each site, and how much each site was holding at the time of the shutdown. Oh, and the contact information for the people who ran each Liberty Reserve exchange. Nobody ever had much reason to go combing through these records. Until Quadriga collapsed and Mike became a person of interest. And when Quadriga customers finally went looking, they found was surprising, because the contact for Midas Gold wasn't Michael Patron, and it wasn't Omar Patron or Omar Denani either. The contact email for Midas Gold was [email protected]. That's right. Jerry had a secret pass, too. Jerry and Mike had dealt Liberty Reserve together. Before they sold Bitcoin to grandmas at Quadriga, they helped cyber criminals launder their money and Midas Gold. Next to Mike, Jerry always seemed pretty harmless, but this meant that maybe they weren't so different after all. And maybe behind the mask Gerald Cotton showed to the world, he was somebody else, too. On the next episode of Exit Scam, a few years ago I was struggling with my financial portfolio. If all like there was no solution, that is until I found the Quadriga fund. Then the people would lost their money, would just sort of think, well, maybe the money's coming, the money's coming, and finally they just kind of give up hope. I'm excited. Are you excited, Jerry? I am excited. Exit Scam was written and produced by me, Aaron Lammer, and Lane Brown. Mixing and additional editing by Martin D. Fowler, show art by Mickey Dujé, theme song by Francis and the lights, music in this episode was by Francis Starlight, Mark Allen Piccolo, Rossi Manini, Martin D. Fowler, and myself. Our executive producers are Max Linsky, Lane Brown, and myself for Treats Media, additional sound editing and producing by James Nicholson, additional producing by Jacqueline Scurrie, special thanks to Jake Shryer, Patty Greco, Naraj Agrawal, my guy ledger status, Evan Ratliffe, Joel Lovell, and Garrett and Jay Can. If you want to listen to next week's episode right now, you can listen to it for free in the Odyssey app. That's A U D A C Y. Look it up in the app store of your choice. Well, listen to next week's episode right now. We'll be back next week.