Part III: The Ponzi Schemer

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. Jerry was a great dude and everyone that you speak to that new and personally I think would tell you that he was a really, really genuine guy that was super smart. That's Adam O'Brien. He's a Bitcoin entrepreneur from Edmonton. Adam was friends with Gerald Cotton, the late CEO of Quadriga, which was once the biggest Bitcoin exchange in Canada. Nearly 2019, when Quadriga customers heard that Jerry had died under mysterious circumstances and that the $215 million in their accounts had disappeared, they were suspicious. They accused Jerry of faking his death and stealing their money. So Jerry's colleagues in the Canadian Bitcoin industry rushed to his defense. They told reporters that the Jerry they knew was an honest businessman and that his death was no conspiracy. When I first heard that Jerry had passed away, I thought it was a huge shame. Jerry was only ever a good guy. I've only ever seen him being a nice man. That's Jerry's friend Michael Parkland. He's the Bitcoin security expert we heard from last episode. My first reaction was, "Oh man, that sucks. The shitty things always happen to the good people." And Quadriga co-founder Michael Patron, Jerry's former business partner, said, "Jerry was a ray of sunshine. I hope we are able to find the cold storage coins and fix what's happened to his reputation." In the last episode, though, we found out that there was more to Mike than he let on. Like his name used to be Omar Denani, and Omar Denani had gone to prison for Israel as a money launderer and an identity theft ring. We also heard that he and Jerry were secretly in business together, way before Quadriga. So this episode is about Jerry's past. What other secrets was he hiding? I'm Aaron Lammer. Welcome to Exit Scan, a podcast about a mysterious death and a missing fortune. This is part three, the Ponzi scheme. The CEO of one of Canada's biggest cryptocurrencies changed his diet 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. Most of the friends who gave interviews about Jerry after his death knew him through business. But the ones who knew him when he was younger, before Bitcoin, stayed quiet. We contacted a lot of them. They usually said, "I lost touch with Jerry a long time ago, so I wouldn't be any help," or, "I don't want to talk out a turn and upset Jerry's parents or his widow, Jack." None of those friends wanted us to record them, so you won't hear their voices here. But a few of them did tell us, without the microphones on, what they remembered. Here's what we were able to piece together about Jerry's life before Quadriga. Gerald William Cotton was born on May 11, 1988. He grew up in Bellville, which is about two hours east of Toronto. To the small town, kind of a nowhere's fill. The city of Bellville is ideally located in eastern Ontario between Toronto, Montreal and Ottawa. With a population of 49,000, Jerry's parents are named Bruce and Cheryl. They own an antique store in Bellville. But since Jerry died, their business has moved online, and they hardly ever answer their phone. "Hello, you have reached Bruce at Quickie Auction Service, specializing in online auctions. Please refer to our website, quickieauctionservice.com, for answers to most questions you may have." Jerry's parents haven't made any public comments since Jerry's death. Neither is his brother Brad, who's about two years younger. Students who knew the cottons say they were a loving family, but Bruce and Cheryl raised their sons to be independent. They gave them what they needed, but they thought it was important for Jerry and Brad to figure some things out for themselves. There were no trophies for finishing in last place. Jerry's classmates from middle school told us he was quiet but smart. He used to buy candy and bulk, sell it to other kids at a markup. Jerry went to a high school called Bayside Secondary in Bellville, and it wasn't very popular. We've seen his earbooks. He didn't play any sports, he didn't belong to any clubs. It wasn't nominated for any senior awards. Growing up Jerry's favorite movie was Catch Me If You Can, starring Leonardo DiCaprio as a smooth-talking teenage con artist. But Jerry himself was not very smooth. A couple people told us that in social situations, Jerry usually just acted bored, like he couldn't wait to get home and back to his computer. They said Jerry spent most of his free time on the internet. He seemed to have more friends online than he did in real life. So he was pretty much your average introvert, except for one thing that people thought was a little weird. As a teenager, Jerry had money, a lot of it. Not millions, but wait more than you'd expect a high school kid to have, even if he had a part-time job. One person who knew him says Jerry used to spread cash out across his bedroom floor, just to see how much of it he could cover in bills. Nobody had any idea where that money came from. Jerry graduated from high school in 2006, and he went on to York University in Toronto. He majored in business. In college, he met a woman named Christine, who was a marketing major in his class. She was Jerry's first real girlfriend. Christine was a little more social than Jerry, and they mostly hung out with her friends. After graduation in 2010, they'd all get together at one of their apartments, somebody would make dinner, and they'd play board games like settlers of Catan. But Jerry was hard to cook for, because around this time he started having stomach problems. He would get pains in his abdomen, and he lost a lot of weight. These were symptoms of what would later be diagnosed as Crohn's disease, but he didn't know that yet, which meant he wasn't taking the right medications. So for a while, Jerry was in and out of the hospital. He used to call his friends and have them run to his apartment to bring him stuff. Change of clothes, or his laptop. But it seemed like he'd be there overnight. But there was something about Jerry that his friends found a little weird. It was the same thing as high school friends thought was weird. His money. He seemed to have a lot of it, especially for a recent college graduate without a day job. Jerry said he was an entrepreneur. He told people he managed websites, and that he'd invested in Bitcoin. But that didn't really explain his lifestyle. Jerry drove a Porsche and he had a nice apartment, a really nice one. It was in a fancy new skyscraper on a high floor with a great view. Jerry also took flying lessons. He eventually got his pilot's license. In 2012, he posted a video to YouTube of himself flying a Cessna 150, high above Ontario, with Christine in the passenger seat. Jerry had more cash than he knew what to do with. In another test of Canada's new plastic money, I'm going to see what happens when I put it in the microwave. That's Jerry in another YouTube video, destroying a $20 bill. All of the hollowed grams, especially melted, are incredibly hot. And Jerry's favorite way to spend money was on travel. In Christine took vacations constantly. They rode tripped all over Canada, spent a whole month in Europe, and had most of the Caribbean too. Hey there, my name is Christine, I'm off in a Shnugle bunny, and today I'm going to be giving you some tips on what you should pack for a cruise. Christine was an aspiring travel influencer. She called herself Shnugle Bunny and made her own YouTube videos with vacation hacking advice that she picked up over the many, many trips she and Jerry went on together. I've been to the Disney parks in both Florida and California eight times over the past three years, and I've used this trick each time and I've never been turned away. Influencing wasn't really Jerry's thing, but he did make a few reluctant appearances in Christine's videos. Here we are at the world's largest McDonald's. I'm excited. Are you excited, Jerry? I am excited. You can just feel Jerry's excited. I got the mixed rib, which I have never ever tried before, and Jerry got the quarter pounder with cheese, double quarter pounder with cheese. That sounds like sort of a risky lunch order for somebody with GI problems. But anyway, Jerry and Christine broke up sometime in 2012 or 2013. And after that, a lot of Jerry's old friends said they lost touch with him. They told me it was almost like he dropped off the face of the earth. Some of them didn't even know that he started a bitcoin exchange, or met jam, the woman who would become his wife. Some never saw or heard from Jerry again. This is free range with Von Miller, the podcast where I step outside the lawns and I take you with 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 feathers, join me every Wednesday and follow free range with Von Miller everywhere you get your podcast. Jerry allegedly died in 2018 on his honeymoon in India, with 215 million dollars belonging to his customers unaccounted for. But even though the story of his death smelled fishy, Canadian authorities were slow to do much about it, at least publicly. That meant Quadrigas customers were on their own. If they wanted a real probe into Jerry and they were missing money, they'd have to make it happen themselves. And so they did. They poured over social media accounts belonging to Jerry and all of his associates. They pulled Jerry's property records. At least one customer hired a private detective and they shared notes online. I got very interested in Quadriga and did a lot of research into it early on and that somehow attracted a lot of attention. That's Amy Kaster. She's a reporter who covers Bitcoin. I decided that I was just going to create this timeline because there was so much information out that was hard to put it together. A few weeks after Jerry's death was announced, Amy spent a week creating a massive timeline of all the events in the case and posted it on her website. And I thought, well, I'm going to collect as much information as possible. I'm going to put up links to all the documents. I'm going to write about everything possible that we know. I'm going to put it into this timeline. After Amy posted her timeline, Quadrigas customer detectives started feeding her information they dug up. They wanted her to write more about Jerry to bring attention to the case. She got a tip from an anonymous customer and goes by the name QCXint. QCXint, like Quadrigas, CX intelligence, that some people just referred to as Q. Just to be clear, QCXint has nothing to do with Q and I. It's a totally different Q. Q, he followed these trails that Gerald Cotton and Michael Patron left on the internet. Web addresses that the email accounts, phone numbers, the addresses. QCXint had found an old account that belonged to Jerry on a shady, now-defront web forum called Toc Gold. Toc Gold was a message board for people who ran high yield investment programs, or HYIPs for short. In layman's terms, these were Ponzi schemes. Jerry created his Toc Gold account in July of 2003. He would have been 15 years old at the time. His username was SEPTER. In January 2004, Jerry, under the name SEPTER, launched a website called SNS Investments. It was a high yield investment program with a janky basic HTML website. SS was one of the high yield investment programs that Gerald Cotton ran on Toc Gold, which was an online forum for promoting these high yield investment programs, or Ponzi's. Just call them Ponzi's. Here's how SNS worked. You would send Jerry money. He accepted EGLE, the pre-bitcoin digital currency. And then, according to the SNS website, within 48 hours, you would get back 103 to 150% of your investment. Or maybe even more. Here's what Jerry said on the website. I'm afraid I'm not going to fill this section of the page with the usual boom for about how your returns are made. This isn't really Jerry's voice. It's our sound editor James, who is from the same part of Canada. We do not invest in stocks, bonds, shares, precious metals, or antiques. All I will say is that we will generate your return and that we are not what is called a Ponzi or Pyramid scheme. This is an absolutely amazing opportunity, which not only offers but delivers returns that exceed most Ponzi or Pyramid programs. That was Jerry's pitch. SNS investments was definitely not a Ponzi scheme, but somehow it generated even better returns than most Ponzi schemes. And amazingly, it seemed to work. More than 200 people signed up. And for a little while, SNS actually seemed to deliver on what it promised. Talk Gold members made posts thanking Jerry for all the money they were making. But how was a 15-year-old paying out 150% returns? While he was using a technique that goes back hundreds of years, he was robbing Peter to pay Paul. Jerry was using the money from new customers to pay old ones. That's how Ponzi schemes work. It was like, oh my gosh. Since 15, he was a con man. I mean, he was running these schemes since he was a kid. When new customers dry up, the whole thing collapses. Every Ponzi scheme in history has eventually collapsed. In an April 2004, three months after it launched, SNS investments stopped paying out. Jerry apologized and claimed that the company behind Egold had suddenly frozen his account, which meant he no longer had access to his customers' money. He wanted to pay them back, but he couldn't. The Ponzi scheme fails, and usually the operator makes up some obscure, ridiculous reason for what happened at Gelapart. Somebody stole the funds, so sorry, I can't give everybody your money back right now. Jerry announced a plan to give SNS customers refunds, and some customers did get their money back. Or at least a few talk Gold forum members claimed have been made home. One of the members vouching for Jerry was someone you know, Michael Patrick, the future co-founder of Quadriga. Using the handle "Patron" Micro out, thanks Scepter. We don't know if Jerry and Mike were working together in 2004, but at the very least, it looks like 19-year-old Mike did 15-year-old Jerry a professional favor. Soon after that, though, all refunds to SNS customers slowed down. And then Jerry returned to talk Gold and announced another Ponzi scheme. He said the proceeds from this one would help him pay refunds to customers from the last one. It was called "Lucky Invest", and the pitch was pretty similar to SNS investments, but this time there was a disclaimer. This is a game that will not have any refunds. About a month later, Lucky Invest went bust too. So by the time he turned 16, Jerry already had at least two Ponzi schemes under his belt. Maybe that explains how a teenager, with no job, always seemed to have so much money. But what Jerry did next was even more brazen. He started hustling in person. It was the summer of 2006, just as Jerry was about to start his freshman year at York University in Toronto. Under the alias Voltaire, like I said, who was a college freshman, he launched a new high-year-old investment program called "United Private Investment Enterprise", aka "UPI". But UPI wasn't just another anonymous Ponzi, like SNS investments or Lucky Invest. Voltaire liked to do business face-to-face. This is from the UPI website. Voltaire is constantly traveling across the United States, Canada, and Europe, in search of new investment opportunities to expand the UPI portfolio. If Voltaire is in your town, it is more than likely he would be thrilled to stop, have a chat, or even enjoy a nice dinner. Voltaire announced he was planning a trip to Toronto, if anyone wanted to meet up. A few investors tick him up on it. They say they had dinner with someone who cleaned to be Voltaire, the vegetarian restaurant, about a half-hours drive from Jerry's dorm. Voltaire told the group his real name was "Dan Vanemann". It was 20 years old and he was in town from Florida. He pitched the investors on UPI over a nice dinner. About four months later though, UPI's website went offline, and Voltaire disappeared. Never to be heard from again. So Jerry had an MO. He learned investors with promises of huge returns, and then he ran away with their money. And then he did it again. Maybe he never stopped. But that wasn't the only trick in Jerry's back. He was a versatile. Remember how he told his friends he managed websites? Well, it was true. QCXN, the Quadriga customer-turned anonymous detective, put together a list of website domain names that Jerry registered over the years. They included ridofzits.com, allergictocorn.com, kneepainwhenbending.com, and goutrelief.org. I could keep going. There are a lot more, but you get the idea. None of these websites were very useful, even if you were allergic to corn, or your knees hurt when you bent them. These were just search engines spam, pretty bottom feeder stuff, and not particularly lucrative. But Jerry also ran lots of other schemes. There's a member of a web forum called "Black Hat World". It's a place where scammers share tips and ask for advice. Sort of a Korra for Petty Cry. Between 2012 and 2015, Jerry posted there more than 300 times. Under the user name's "Septor" and "Murdoch 1337". And he seems to have been involved in all sorts of fraud. Jerry asked Black Hat World members for help with caching out the money he made on eBay scams, selling things from bogus accounts. He posted a wanted ad for a "chilling expert". That is, somebody who would pretend to be a satisfied customer of one of his scams, leave phony positive reviews around the internet. And a post from December 2012, about a year before he launched "Quadriga". Jerry crowdsourced ideas for how he could con the local business. Here's what the post said. "I have a rental storage unit, and recently the owner of the storage facility screwed up and sent out a mass email to everyone who has a unit, and included everyone's emails in the email. Is there a way I can monetize this through some sort of storage affiliate program? Where should I consider selling the client list to another local competitor? Any suggestions?" When I read that, I thought, "Jerry wanted to screw over the poor owner of some little storage locker business, just because they forgot to use BCC on an email. How profitable could a scam like that even be? But maybe it wasn't about the money anymore. Maybe Jerry was just addicted to ripping people off." In the fall of 2012, Jerry launched a new high yield investment program. This time, he even paid an actor to star as a satisfied customer in a cheap looking video. A few years ago, I was struggling with my financial portfolio. The stock market was plumbing. Banks were offering pathetic returns, and my investments were falling behind. According to its website, this high yield investment program was run by four venture capitalists, and had offices in Toronto, Montreal, and Vancouver. Also, the name of this program might sound familiar. "It felt like there was no solution. That is until I found the Quadriga fund." That's right. The Quadriga fund. The Quadriga is a cherry, pulled by four horses. In sculptures of the Roman god Jupiter, he's often driving a Quadriga and holding a scepter. While most bank investments require you to lock in funds for five years, the Quadriga fund allows me to withdraw at any time without penalty. Overall, I couldn't be more satisfied with the Quadriga fund. The Quadriga fund never really made it off the ground. It's website disappeared a couple months after it went up. There were no angry customers complaining about stolen money this time, which made it safe for Jerry to recycle the name. For the Bitcoin exchange, he launched a year later. So Quadriga, the Bitcoin exchange, was founded by a veteran Ponzi Schemer, and it was named after a Ponzi Schemer, and it ended the same way every Ponzi Schemer ends. It collapsed and investors lost their money, which all raises the question. Was Quadriga a Ponzi Schemer from the very beginning? On the next episode of Exit Scam, I had already at that point gotten a tip that you know, Quadriga wasn't bigger trouble than anyone had thought or anyone knew. We realized the money was gone pretty much immediately from the code that's on the blockchain. Five days later, I opened my mail box and there's a nice yellow envelope and it was $20,000 and it was literally taped together inside the yellow envelope. They didn't even ship a FedEx, they didn't VHL, they didn't send it even a signature Canada post. Exit Scam is an original production of Treats Media. You can get next week's episode right now exclusively on the Odyssey app. Odyssey has all the podcasts you crave, plus the music, news, and sports that matter to you. That's AUDACY, download it for free today from the App Store or Google Play. I'm your host, Aaron Lammer. I wrote and produced this show with Lane Brown, mixing and additional editing by Martin D. Fowler. Show art and art direction by Mickey DuJay. The theme song is by Francis and the lights and the scoring from this episode was by Francis Starlight, Mark Allen Piccolo, Rossi Manini, Martin D. Fowler, and myself, with additional cues from epidemic sounds and blue dot sessions. Our executive producers are Max Linsky, Lane Brown, and myself for Treats Media, additional sound editing and producing by James Nicholson. He also played Jerry in this episode, additional producing by Jacqueline Scurry. Special thanks to Jake Shryer for coaching me through the narration of this and other episodes. Thanks to Jenna Weiss, Berman, and everyone at Pineapple Studios for everything they've done for the show. Thanks to Lizzie Denahan, JD Crowley, Anne Garrett, Jake Hang, Patty Greco, Evan Ratliffe, Joel Lovell, Niraj Agrawal, Ledger Status, and anyone else I'm forgetting, we'll be back next week.