Bankrupt Mt. Gox endures assets freeze

Bankrupt Mt. Gox endures assets freeze

Summary: After being granted bankruptcy protection in Japan and the U.S., a judge has ordered the Bitcoin exchange's assets frozen.

TOPICS: Tech Industry
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Credit: stock image

Mt. Gox, a Bitcoin trading post that managed to lose millions of Bitcoin belonging to customers, has been granted bankruptcy protection in the U.S. and its assets have been frozen.

According to Bloomberg, a federal judge in Chicago has frozen the U.S. assets of the exchange. U.S. District Judge Gary Feinerman issued a temporary order to tie up the money and property belonging to Mt. Gox, its corporate parent Tibanne KK, and Mt. Gox CEO Mark Karpeles after a hearing.

The order was not opposed by these parties.

Once the dominant Bitcoin exchange worldwide, Mt. Gox shut down last month. In total, approximately 750,000 Bitcoins deposited by users and 100,000 Bitcoins belonging to Mt. Gox vanished, which is worth roughly $500 million in today's trading rates.

Karpeles said the loss -- taking place over several years -- was due to "weaknesses in the system" which allowed cyberattacks and Bitcoin theft to occur, although critics argue that mismanagement was truly the cause of this oversight. Following closure, Mt. Gox filed for bankruptcy protection in Japan as well as Chapter 15 bankruptcy protection in the United States on Sunday.

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The Mt. Gox bitcoin debacle: Bankruptcy filed, customer bitcoin lost

The Mt. Gox bitcoin debacle: Bankruptcy filed, customer bitcoin lost

UPDATE: Mt. Gox has closed the bitcoin exchange and filed for bankruptcy in Japan.

Illinois resident Gregory Greene is suing the Bitcoin exchange on behalf of every U.S. consumer that claims to have lost investments due to the closure of Mt. Gox, as well as saying he has personally lost roughly $25,000. Greene accuses the firms and Karpeles of mismanagement and fraud. One of Greene's attorneys estimates that between $2.1 and $5 million in assets has been frozen by the order.

At the same time, Mt. Gox's bankruptcy protection in Japan and the United States shields the company from further litigation.

In related news, U.S. watchdog the Commodity Futures Trading Commission (CFTC) is considering the regulation of digital currencies including Bitcoin, in light of the disaster which has cost consumers millions worldwide. While outside of government control, Bitcoin can prove lucrative -- but also lacks government protection in the case of loss, as it is not backed by a central authority or bank.

Mark Wetjen, acting chairman of the commission, said the authority is exploring whether Bitcoin can be considered a commodity -- and therefore falls under CFTC rulings. While there is only internal at the staff level currently, Wetjen commented:

"I think people (in the agency) believe there's a pretty good argument that it would fit that definition. Then there's a separate question about whether or not there is some derivative contract based on, or denominated in a virtual currency and whether that's listed on an exchange. [...] There's some looking into that question too."

Topic: Tech Industry

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  • Since MtGox is already in bankruptcy...

    ...wouldn't the bankruptcy court have jurisdiction over the case in the US? I'm not familiar with Chapter 15, but the usual rule in US bankruptcies is an automatic stay on other legal proceedings concerning the debtor which only the bankruptcy court can lift.
    John L. Ries
  • U.S. courts shouldn't waste any time or money on this

    The Bitcoin fans state as a matter of their ideology that Bitcoins are unregulated and not subject to government oversight. So, by that logic, they should have no recourse whatsoever to the taxpayer funded governmental legal system to try and recover any of the Bitcoin assets that they have lost. I certainly don't want my government, supported by my tax DOLLARS, used to bail out people who (a) don't want to pay their fair share of taxes and (b) want to eliminate my government, which is the only protection I have against rapacious corporations and individuals who would take everything I have in its absence. Let them pound sand.
    Sir Name
    • Courts are obligated to apply the law

      Proceedings have been initiated, so judges have to follow through.

      There's only one US federal court with the privilege of deciding what cases it will hear and that's the Supreme Court. All lower federal courts have to consider all cases brought before them (but filing a frivolous or malicious lawsuit is a fining offence).
      John L. Ries
    • Isn't that ironic, that they want no money going to the government

      or local services, but they still whole heatedly expect the government to protect them from invading armies, or the police from the thief next store, or the fire dept. to save their personal belongings, ect.
      • As much as MtGox is to blame, this ultimately falls on Bitcoin "consumers"

        ...who failed to secure their assets of value. It's as simple as that. Yes, MtGox dropped the ball, went to pick it up, and dropped it again continuously over the course of a couple years, but we are talking about VALUABLE ASSETS here. Every Bitcoin user knows or should know, at this early point, that there are no consumer protections for Bitcoins. It is the riskiest, most volatile investment option (or close) in the history of commerce.

        If you keep cash in your hands (literally), you can be fairly confident that the cash is safe from theft. If you keep it in a purse or pocket, you can be a little less confident. If you give it to a third-party to hold on your behalf, you had better damn well be sure that they can safely do so. You wouldn't trust your money with some shady, non-SSL website; why would you trust it with MtGox (ESPECIALLY if you do not live in Japan!).

        That is not to say that people shouldn't have used MtGox, but people should have been smart, and only used it as a trading platform, not as a storage mechanism. I have traded probably $10,000's through MtGox. The longest my Bitcoins were in MtGox control was a matter of minutes. MtGox has been subconsciously warning users away from their service for a long time (not explicitly, but anyone with a brain should have noticed that they were hardly suited to operate in a corporate environment).

        Bitcoin protocol allows users to create wallets based on a memorizable passphrase! Such a wallet is literally as secure as your imagination can allow. I really don't think these lawsuits will bring any reparations to the users who long assets at MtGox. There are no consumer protections, users all knew this, and no one was coerced to send their assets to MtGox.

        I'm certain that MtGox and Karpeles will burn in hell for their incompetence, but I doubt their victims have any claim to get any assets returned.
        Michael Heier
        • Is it a bird, a plane, or superman?

          Michael Heier: "[BitCoin] is the riskiest, most volatile investment option (or close) in the history of commerce."

          Even more risky than financial derivatives which came close to bringing down the global economy? And prompted the U.S. government to transfer roughly $13 trillion U.S. to the monster Wall Street banks? Remember that financial derivatives avoided any regulation whatsoever through an Act of the U.S. Congress and, subsequently, the pen of U.S. President Bill Clinton.

          Just what, exactly, *is* BitCoin? An investment option, as stated by Michael Heier? Some here have refered to BitCoin as either a commodity or virtual commodity, which could be construed as an investment option.

          And, yet, others call it money (but not fiat money, at least, yet). We learned yesterday that accepted payments in BitCoin.

          Finally, Warren Buffett has stated that BitCoin is not a currency:

          "because it doesn't meet the criteria of a currency, including being a store of value".
          Rabid Howler Monkey
      • I don't know that MtGox was founded by anarchists

        In any case, it appears to hold a state-issued corporate charter.
        John L. Ries
    • Not all Bitcoiners are radical libertarians

      Come can't lump all Bitcoin users into the "libertarian, anti-government" group. There are many Bitcoin users who properly pay their taxes, and support various government programs, myself being one of them, and my acquaintances being a dozen more. now accepts Bitcoins--will they no longer pay taxes because of that? It is NOT the case that people who use Bitcoin don't want government oversight--that is perhaps what the media want, since they stress that fact in the majority of their blogs and articles.

      The fact is that Bitcoin itself isn't subject to government oversight, but surely a corrupt company that happily accepts consumers' USD, ignores a long-term hacking threat, and then declares bankruptcy deserves some sort of trial and investigation. To be clear, there is no flaw in Bitcoin that allowed hackers to steal MtGox non-BTC assets. For all of the USD, JPY, etc. that went INTO MtGox, this is what people are entitled to sue for.

      Bitcoin is just a protocol, useless in and of itself. The services built on top of Bitcoin are what gives the technology utility and value, but also risk. Yes, the Bitcoin protocol is unregulated. So is HTTP and the other internet protocols. It's up to the services that use them to do so in a manner that is safe and productive, and THOSE SERVICES can be, should be, and are regulated. MtGox is one of those services. Nowhere will you find anyone that will claim that companies that operate in Bitcoin, simply by doing just that, should be immune from government oversight.

      I, personally, don't want my tax dollars helping to fund prisons that hold "criminals" who smoke cannabis, but alas, that is what the government does, and it apparently takes a decades' worth of truth and logic to get the point across to the government, that such a policy is wasteful to say the least. The fact is, what I want my taxes to pay for, and what the government needs to do with my taxes are two very different things. I simply cannot comprehend the scope if programs and agencies that all get paid through the IRS, and I doubt any one single person could either.

      Stop judging books by their covers, and stop eating up all of the mainstream propaganda around Bitcoin. There's truth to be discovered regarding the Bitcoin technology and potential uses, but you have to dig a little deeper than ZDNet to get at that truth.
      Michael Heier
      • Libertarian?

        Why not throw in the Tea Party as long as you're at it?
    • Prejudiced comments

      So people who invest their money are anti-government who don't pay taxes ? A whole lot of people invest their money trying to better themselves and make their money work for them....its the smart thing to do. This is stereotypical behavior. We need people to invest their money or we wouldn't have that great of an economy now would we ?

      If you want to get real about this there are a lot of people who have their hand out looking for money from this government and some policians are more than willing to give it out in exchange for votes.

      I hope you aren't one of those people who think government is the solution to all our problems. They are just and fair right ? That's why we have $17 trillion in debt and climbing rapidly. We are spending a trillion more dollars than what we take in on an annual basis. We all have to live within our means. The same government that took three years to build for a uninmaginable $1 billion price tag and it still sucks and is insecure ! The same government that had a big hand creating the housing crisis with their idea that everyone deserves a house whether or not they could afford it ? The US Government is the biggest lender of mortgages.....and why are they in the housing market ? This should be private enterprise only.

      Nobody wants to eliminate the government but there is such a thing called right-size goverment. They should not be the world's largest employer. We have way too many agencies. We have to pound on them to get them to follow the constitution. Why is the NSA spying on everyone and how much is this costing us ?

      I feel bad for these investors but you assume risk everytime you cut a check. Never invest more than you can afford to lose. I have been watching bitcoins but in no way interested in making an investment. It seems too risky for my taste.
      • Investment vs speculation

        It's one thing to invest money in businesses that will use it to grow and provide a profit as a consequences; another to simply buy things on the theory they'll be more expensive tomorrow and can then be sold at a profit. The first is win-win; the second is win-lose. I humbly suggest that Bitcoin speculation falls in the second category, not the first.
        John L. Ries
  • "Customers" lost money?

    I thought that Bitcoins were untraceable.
    I will file a claim for $500M, regardless.
    As good as any other, it is.