News / Economy

Mt. Gox Files US Bankruptcy, Opponents Call it a Ruse

FILE - Mark Karpeles, chief executive of Mt. Gox, attends a news conference at the Tokyo District Court in Tokyo, February 28, 2014.
FILE - Mark Karpeles, chief executive of Mt. Gox, attends a news conference at the Tokyo District Court in Tokyo, February 28, 2014.
Mt. Gox, once the world's largest bitcoin exchange, received U.S. bankruptcy protection on Monday to temporarily halt U.S. legal action against the Japanese company by traders who allege the operation was a fraud.
Judge Harlin Hale in Dallas granted temporary bankruptcy protection to Mt. Gox, which had filed for bankruptcy protection in Japan in February. Attorneys for Mt. Gox said that without bankruptcy protection, the company would be irreparably harmed by a proposed class action in Chicago federal court and a breach of contract case in Seattle federal court.
Mt. Gox filed for bankruptcy in Japan last month after it said it may have lost 750,000 of its customers' bitcoins as part of an attack by hackers.
The plaintiff leading the Chicago lawsuit was scheduled on Tuesday to ask a federal judge to freeze Mt. Gox's U.S.-based servers and other computer equipment and to set up a trust over Mt. Gox's assets. Mt. Gox's founder, Mark Karpeles, was scheduled to be deposed later this month in the Seattle lawsuit.
The attorney leading the class action blasted the bankruptcy as a ruse.
“This case involves a massive fraud,” said Steven Woodrow, an attorney leading the class action, told Hale. “They claim incredibly that they will preserve assets and protect assets by entrusting the servers and other property to Mr. Karpeles. Respectfully, your honor, that is the definition of the fox guarding the henhouse.”
Mt. Gox said in papers filed with the Dallas court that the hacking attack was the subject of an intense investigation that indicated so far the bitcoins were lost as a result of a flaw in the software algorithm that underlies bitcoin, the digital currency.
An attorney for CoinLab Inc, which sued Mt. Gox in Seattle for breaching a contract last year, said her client was troubled by what appeared to be fraudulent behavior by Karpeles in the days leading up the U.S. bankruptcy filing.
“We don't have proof yet but we do have concerns about the movement of hundreds of millions of dollars in bitcoins over the weekend, moved by Mr. Karpeles,” said Jane Pearson, an attorney with Foster Pepper.
Mt. Gox's attorney, David Parham, denied there was any fraud and said he believed Karpeles and Mt. Gox were complying with the Japanese bankruptcy proceeding.
The Chapter 15 filing allows Mt. Gox to ask the U.S. Bankruptcy Court to recognize its foreign bankruptcy and to assist in the Japanese proceedings by protecting its U.S.-based assets.
Hale's order protects Mt. Gox's U.S. assets until April, when the parties will return to court and Mt. Gox will seek a permanent stay of U.S. litigation. Hale said his order staying litigation did not apply to non-debtors, presumably Karpeles.
Karpeles was named in a proposed class action filed in late February by Gregory Greene, an Illinois resident. The lawsuit proposes to represent all U.S. residents who paid a trading fee to Mt. Gox and those who had bitcoins or other currency with the exchange when it halted bitcoin withdrawals on Feb. 7.
Greene is seeking to recoup millions of dollars lost when the Mt. Gox website went down and prevented traders from selling as bitcoin prices plummeted.
Mt. Gox is also defending a lawsuit in federal court in Seattle by CoinLab Inc for breach of contract. CoinLab is seeking damages of $75 million from Mt. Gox.
Mt Gox's tangled web of shell corporations brings the spotlight back to an issue U.S. law enforcement authorities have perennially raised with Congress. Several states, including Delaware, where Karpeles had at least two registered corporations, let foreigners register new corporations without ever setting foot in the United States, relying instead on agents to act as conduits for the companies' owners.
The agents send along documents like lawsuits and other business communications addressed to the companies but keep no records themselves. They do not keep track of who the company's true beneficial owner may be. When investigators want to find out more about these companies' activities, the only information they can get from the agents is contact information for whatever overseas entity has been designated to receive correspondence about the company.
Such is the structure of Mutum Sigillum, a company Karpeles registered in Delaware. He used it to interact with a U.S. bank through Dwolla, an online payment network. Real money passed through Mutum Sigillum (which means “worthless little symbol” in Latin), but it left almost no paper trail in the United States.
It was registered in Delaware by Vincent Allard, a French Canadian lawyer who for the past 13 years has been living in Dover, Delaware and, along with his daughter, running a business acting as a registered agent for Delaware corporations.
Allard specializes in creating companies for people from Francophone countries, since he speaks French.
When reached by phone on March 5, Allard said he had not heard of Mt. Gox's bankruptcy in Japan and would nevertheless have almost nothing to offer investigators if any were to come knocking.
He was not in the office Monday and did not immediately respond to a request by email for comment on the Texas filing.
Representatives from the Federal Bureau of Investigation and other law enforcement agencies have been lobbying Congress for years to pass a bill that would prohibit states from allowing the incorporation of shell companies without better documentation and more oversight.
The Incorporation Transparency and Law Enforcement Assistance Act, introduced in 2011 by Sen. Carl Levin, is before the Senate Judiciary Committee awaiting a markup.
The bill would require states to record the identities of the beneficial owners of corporations they register and keep a corresponding driver's license or passport number, or a copy of a foreign passport on hand, ready to turn over to law enforcement officials if necessary.
The case is Mt. Gox Co Ltd, U.S. Bankruptcy Court, Northern District of Texas, No. 14-31229.

You May Like

Video In US, Columbus Day Still Generates Controversy

Holiday marks date Columbus discovered Americas, but some are offended by legacy because he enslaved many natives he encountered More

Video Through Sports, Austria Tries to Give Migrants Traction

With 85,000 people expected to claim asylum in Austria this year, its government has made integration through joint physical activities a key objective More

Video Kickboxing Champion Shares Sport With Young Migrants

Pouring into Europe by hundreds of thousands, some migrants, especially youngsters, are finding sports a way to integrate into new host countries More

This forum has been closed.
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Amnesty Accuses Saudi Coalition of ‘War Crimes’ in Yemeni
Henry Ridgwell
October 12, 2015 4:03 PM
The human rights group Amnesty International has accused the Saudi-led coalition of war crimes in airstrikes against Houthi rebels in Yemen. Henry Ridgwell reports the group says hundreds of civilians have been killed in strikes on residential areas.

Video Amnesty Accuses Saudi Coalition of ‘War Crimes’ in Yemen

The human rights group Amnesty International has accused the Saudi-led coalition of war crimes in airstrikes against Houthi rebels in Yemen. Henry Ridgwell reports the group says hundreds of civilians have been killed in strikes on residential areas.

Video No Resolution in Sight to US House Speaker Drama

Uncertainty grips the U.S. Congress, where no consensus replacement has emerged to succeed Republican House Speaker John Boehner after his surprise resignation announcement. Half of Congress is effectively leaderless weeks before America risks defaulting on its national debt and enduring another partial government shutdown.

Video New Art Exhibit Focuses on Hope

Out of struggle and despair often comes hope. That idea is behind a new art exhibit at the American Visionary Art Museum in Baltimore, Maryland. "The Big Hope Show" features 25 artists, some of whom overcame trauma and loss. VOA’s Deborah Block reports.

Video Columbus Day Still Generates Controversy as US Holiday

The second Monday of October is Columbus Day in the United States, honoring explorer Christopher Columbus and his discovery of the Americas. The achievement is a source of pride for many, but for some the holiday is marked by controversy. Adrianna Zhang has more.

Video Anger Simmers as Turks Begin to Bury Blast Victims

The Turkish army carried out new air strikes on Kurdistan Workers Party (PKK) targets on Sunday, a day after the banned group announced a unilateral cease fire. The air raids apparently are in retaliation for the Saturday bombing in Turkey's capital Ankara that killed at least 95 people and wounded more than 200 others. But as Zlatica Hoke reports, there are suspicions that Islamic State is involved.

Video Bombings a Sign of Turkey’s Deep Troubles

Turkey has begun a three-day period of mourning following Saturday’s bomb attacks in the capital, Ankara, that killed nearly 100 people. With contentious parliamentary elections three weeks away, the attacks highlight the challenges Turkey is facing as it struggles with ethnic friction, an ongoing migrant crisis, and growing tensions with Russia. VOA Europe correspondent Luis Ramirez reports.

Video Afghanistan’s Progress Aided by US Academic Center

Recent combat in Afghanistan has shifted world attention back to the central Asian nation’s continuing civil war and economic challenges. But, while there are many vexing problems facing Afghanistan’s government and people, a group of academics in Omaha, Nebraska has kept a strong faith in the nation’s future through programs to improve education. VOA’s Greg Flakus has more from Omaha, Nebraska.

Video House Republicans in Chaos as Speaker Favorite Withdraws

The Republican widely expected to become the next speaker of the House of Representatives shocked his colleagues Thursday by announcing he was withdrawing his candidacy. The decision by Majority Leader Kevin McCarthy means the race to succeed retiring Speaker John Boehner is now wide open. VOA National Correspondent Jim Malone reports.

Video German, US Officials Investigate Volkswagen

German officials have taken steps to restore some of the reputation their car industry has lost after a recent Volkswagen diesel emissions scandal. Authorities have searched Volkswagen headquarters and other locations in an effort to identify the culprits in the creation of software that helps cheat on emission tests. Meanwhile, a group of lawmakers in Washington held a hearing to get to the bottom of the cheating strategy that was first discovered in the United States. Zlatica Hoke reports.

Video Why Are Gun Laws So Hard for Congress to Tackle?

Since taking office, President Barack Obama has spoken out or issued statements about 15 mass shootings. The most recent shooting, in which 10 people were killed at a community college, sparked outrage over the nation's gun laws. But changing those laws isn't as easy as many think. VOA's Carolyn Presutti reports.

Video In 'He Named Me Malala,' Guggenheim Finds Normal in Extraordinary

Davis Guggenheim’s documentary "He Named Me Malala" offers a probing look into the life of 18-year-old Malala Yousafsai, the Pakistani teenager who, in 2012, was shot in the head by the Taliban for standing up for her right to education in her hometown in Pakistan's Swat Valley. Guggenheim shows how, since then, Malala has become a symbol not as a victim of brutal violence, but as an advocate for girls’ education throughout the world. VOA’s Penelope Poulou has more.

Video Paintable Solar Cells May Someday Replace Silicon-Based Panels

Solar panels today are still factory-manufactured, with the use of some highly toxic substances such as cadmium chloride. But a researcher at St. Mary’s College, Maryland, says we are close to being able to create solar panels by painting them on a suitable surface, using nontoxic solutions. VOA’s George Putic reports.

VOA Blogs

World Currencies


Rates may not be current.