The recent collapse of Japan’s Mt. Gox, the world’s largest Bitcoin exchange, has revealed that virtual money incites as much greed and discord as the real thing.
Once the trading platform for around 70 percent of the Bitcoins in existence, Mt. Gox shut down and declared bankruptcy on February 28th in both Japan and the United States after the company announced that hackers had robbed the exchange of around 850,000 Bitcoins, valued at $495 million.
Now the company faces class action lawsuits from pissed-off American and Canadian customers who want their money back. But bankruptcy protection currently shields the company from the lawsuits.
Though that protection might now be evaporating.
On Tuesday a federal judge ordered Mt. Gox Chief Executive Mark Karpeles, a French citizen living in Tokyo, to appear in Dallas on April 17th to explain why he’s so broke that he needs to file for Chapter 15, the bankruptcy law that handles international debts."If he avails himself of this court, my God, he is going to get himself over here," Judge Stacey Jernigan reportedly said. Jernigan is a George W. Bush appointee.
Steven Woodrow, the Denver-based attorney leading the American class action lawsuit, asked the judge to force Karpeles to face justice in Texas. The CEO wanted to stay in Asia while his lawyers represented him in absentia.
“I think it’s important that people don’t get to hide behind a website,” Woodrow told VICE News.
And he is itching to get Karpeles on the stand. Eleven days after Mt. Gox declared bankruptcy, company executives publicly said they had found a treasure trove of 200,000 Bitcoins in an old “wallet” — tech lingo for the accounts that hold the virtual currently.
"MtGox had certain old-format wallets which were used in the past and which, MtGox thought, no longer held any Bitcoins," Karpeles said in the filing about the balance.
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Mt. Gox has stated that the company is currently working with Japanese authorities to discover what happened to the stolen Bitcoins, and how best to recover them. It has made no statements about returning the newly-discovered Bitcoins to customers.
But the discovery's timing certainly created a pretty convenient way for the company to tie up cash that could have repaid customers, Woodrow argued.
“Either it was a case of gross incompetence and negligence to a very serious level of fraud,” Woodrow said. “After declaring bankruptcy, he actually discovered 200,000 Bitcoins that were missing. That’s an asset worth $90 to $110 million depending on the value of Bitcoins at the moment.”
Mt. Cox’s lawyers didn’t immediately respond to a request for comment from VICE News.
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Japanese courts are also trying to figure out whether Mt. Cox deserves bankruptcy protection. The Tokyo District Court has given a special investigator until early May to write a report explaining why the exchange failed — a document that could become a milestone in the short history of Bitcoin as enthusiasts try to figure out how to make cryptocurrencies work.
In a blow to the prestige of Bitcoin, the website of Mt Gox, the once dominate trading platform of the virtual currency, stopped all transactions on February 25.
Cyber attacks have also crippled Vircurex, Flexcoin, Poloniex and other Bitcoin exchanges in recent months, bolstering the case to regulate Bitcoins in the same was as mainstream finance. The IRS recently decided to tax Bitcoins as assets that rise and fall in value, New York State has proposed regulating exchanges, and Germany has designated Bitcoins as private money, for example.
In the meantime, Woodrow said that he feels that the case wasn’t necessarily a reflection on the value of Bitcoins.
“There are exchanges that operate just fine,” he said. “Karpeles took real people’s real money. If you are going to get into this business and take people’s money, you have to be serious about it.”
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