A Canadian cryptocurrency exchange said it could not repay at least $250 million to clients after its chief executive died suddenly while visiting India. The company, Quadriga CX, said in court filings that the C.E.O., Gerald W. Cotten, was the only person who knew the security keys and passwords needed to access the funds.
The Supreme Court of Nova Scotia on Tuesday approved the company’s request for protection against creditors for 30 days and the appointment of the accounting firm Ernst & Young to sort out Quadriga’s finances and explore a possible sale.
The company’s inability to release its clients’ money has created an uproar among angry – and highly suspicious – investors.
Mr. Cotten, a co-founder of the firm in 2013, died of complications from Crohn’s disease while traveling to open an orphanage, the company said in an announcement posted to Facebook on Jan. 14. The note said that Mr. Cotten, 30, had died on Dec. 9.
In an affidavit, his widow, Jennifer K. M. Robertson, wrote that her husband had run the business from an encrypted laptop, working mostly out of their home in Fall River, Nova Scotia. Ms. Robertson did not know the password or recovery key and could not find them written down anywhere “despite repeated and diligent searches,” she wrote.
Ms. Robertson said she also hired an expert to find the cryptocurrency in “cold wallets” stored offline, with little success.
While other crypto-exchanges have lost their clients’ money, this appears to be the first one that has said it actually lost the keys to its accounts.
Quadriga’s platform went offline on Jan. 28, and frustrated investors have taken to Reddit and Twitter to discuss their investigations into the company’s claims and potential lawsuits. Some questioned whether Mr. Cotten had indeed died – or whether, perhaps, he had faked his death to pull off what is known as an exit scam.
He noted that various online sleuths had been searching the blockchain, a ledger that can be updated by decentralized networks, for evidence of where Quadriga had stored its assets, but had found none, which raised red flags.
When it shut down, Quadriga’s platform had 363,000 users, and 115,000 of them had balances in their accounts: about $180 million in cryptocurrency and $70 million in Canadian currency, the court documents state. The exchange enabled trades of Bitcoin, Litecoin and Ether, plus other types of cryptocurrency. The largest user claim was valued at about $70 million.
Quadriga was one of 237 widely recognized public cryptocurrency exchanges worldwide, Dr. Sirer said. In terms of daily trade volume, it was ranked in the middle of the pack as of October, according to the website CoinMarketCap.
The exchange kept currency in “hot wallets,” which were connected to the internet and could quickly fulfill withdrawal requests, and “cold wallets,” which were kept offline and stored physically, such as on a USB stick, making them more secure, according to court papers.
Ms. Robertson wrote in her affidavit that after her husband’s death, his employees tried to get into the cold wallets but failed or found only small amounts of money. Other cryptocurrency investors, on social media and in interviews, questioned why a chief executive would be the sole point of access to such a vast sum.
In an initial report to the court, Ernst & Young wrote that it was facing an extraordinary set of case facts. Quadriga had no discernible accounting system and no bank account, according to the filing. Mr. Cotten typically sent directions to release payments, which were made through third-party payment processors, to employees by email, and payment inflows and outflows “were not systemically tracked,” Ernst & Young wrote.
The court papers state that the company has substantial assets in various cryptocurrencies and that unreleased bank drafts in the company’s name total about $30 million, with $375,000 in cash held by others. Several firms have come forward with offers to buy the business, which could be valuable to competitors, the papers state.
Will Dias, the chief technology officer for Zabo, which calls itself an emerging cryptocurrency bank, said that he began to have trouble withdrawing his own funds from Quadriga in the fall.
He had been receiving his paycheck in cryptocurrency and liked using Quadriga because the company had low rates. But the delays worsened, and he eventually took most of his money out, save for “a couple thousand dollars” in Canadian currency, he said.
“At this point, I don’t believe I will ever see that money again,” he said.
The Globe and Mail reported that Mr. Cotten had signed a will on Nov. 27 appointing Ms. Robertson as the executor of his estate and designating $100,000 for the care of his two pet chihuahuas, Nitro and Gully. His assets included an airplane and property in British Columbia and Nova Scotia, the newspaper reported.
Ms. Robertson, who was also appointed as a director of Quadriga after her husband’s death, did not return a call seeking comment. In the affidavit, she wrote that Mr. Cotten’s Crohn’s, an inflammatory bowel disease, had been diagnosed when he was 24. The disease is not normally fatal, but it can lead to life-threatening complications.
The documents submitted to the court included a “Statement of Death” from J. A. Snow Funeral Home in Halifax, which states that Mr. Cotten died in Jaipur, India. The funeral home would not provide any additional information, citing its clients’ privacy.
On Tuesday afternoon, the news site CoinDesk posted what it said was a death certificate for Mr. Cotten from the government of Rajasthan’s Directorate of Economics and Statistics. (Earlier, the police in Jaipur and several large hospitals in the region had told The Times they had no information about Mr. Cotten’s death.)
Guillaume Bérubé, a spokesman for Global Affairs Canada, which oversees diplomatic matters, said the office had provided assistance to the family of a Canadian who died while visiting India, but he could not comment further because of privacy laws.
The company’s Facebook post said that Mr. Cotten had traveled to India to open an orphanage. A photo circulating online showed the couple’s names on a banner for Angel House, a California-based organization that builds orphanages, but the group did not return a call seeking comment.
Dean Skurka, vice president for finance and compliance at another Canadian cryptocurrency platform, bitbuy.ca, said the case “highlights the need for regulation” of crypto-exchanges, which must comply with laws regarding money laundering and terror financing but are otherwise largely ungoverned in many jurisdictions.
But others involved in cryptocurrency, including Dr. Sirer at Cornell, are wary of regulation, fearing it could stifle innovation.
Ayesha Venkataraman contributed reporting from Mumbai, and Kai Schultz from New Delhi. Susan C. Beachy contributed research.
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