

Mt. Gox Receives Subpoena From Federal Prosecutor: Source - antonID
http://online.wsj.com/news/articles/SB10001424052702303880604579405852448992982

======
downandout
Bitcoin as a concept would be attacked by governments under even the best of
circumstances. I don't know why the major players in it have to be so dumb
and/or unscrupulous as to draw this level of negative attention to it.

As for Mt. Gox itself, its principle(s) will be aggressively prosecuted and
sentenced. The New York US attorney behind the subpoena is Preet Bharara.
Preet is responsible for shutting down online poker and obtaining the longest
sentence for insider trading ever handed down, among other such dubious
"accomplishments". He has never met a camera he didn't love, and will take the
opportunity to thrash not just Mt Gox but also Bitcoin itself in the media.

~~~
tzs
What do you find dubious about the insider trading conviction and sentence?

~~~
downandout
I find his accomplishments dubious because a) I believe that there are
substantially more effective ways to deter crime and punish offenders than the
lengthy prison sentences that his office pushes for in most cases, and b) he
uses every major case he brings elected office, and is unnecessarily
destroying many lives in that pursuit. In my opinion, that negates any
positive things he may have done and renders all of his accomplishments
dubious.

~~~
sheetjs
> I believe that there are substantially more effective ways to deter crime
> and punish offenders than the lengthy prison sentences that his office
> pushes for in most cases

... like fines? The fines we end up seeing are paltry compared to the profits
of the activity, effectively incentivizing illicit practices

~~~
rtpg
this is parroted so often but is usually quantifiably false. Usually the fines
are small compared to overall profit of a company because the actions are
relatively small compared to total operations, but most fines defintely cost
the company more than not doing the actions would have in financial cases.

~~~
sheetjs
HSBC paid 1.9B fine for money laundering related to Mexican drug cartels.

To understand this number, lets look at the DOJ claims:

> Between 2006 and 2009, according to DOJ, HSBC failed to monitor $670 billion
> in wire transfers and $9.4 billion in cash transactions from its Mexico bank
> operations.

We don't know exactly how much HSBC profited from these specific alleged
activities, but even a 1% rate (pretty low if they turned a blind eye,
especially on the cash side) would net more than triple the fine. (and yes,
profiting 7B and paying 2B in fines is a net profit of 5B)

I do, however, agree that quotes like "X days profit" generally refer to the
entire bank's profit and not to the actual activity in question

~~~
rayiner
So they failed to monitor $10 bn in transactions. 1% of that is $100 m. The
fine was 19x larger. What am I missing?

~~~
eliasmacpherson
"HSBC failed to monitor $670 billion in wire transfers"

------
appleflaxen
Where were these zealous prosecutors during the global financial meltdown in
2008? It would be nice if people went to jail for fraudelently representing
mortgages.

I'm fine with Gox getting investigated, too, but justice shouldn't depend on
who you are.

~~~
rodgerd
They were cheerfully going after targets, until it turned out that the public
are easy to convince that effective prosecuters should lose their jobs if they
visit sex workers.

The fact the current top comment in this thread is someone slagging off a
prosecuter for going after insder traders demonstrates that HN's as dumb an
audience as the average tabloid reader when it comes to convincing people that
enforcing the law against corrupt Wall Street criminals is a bad thing.

~~~
bsder
> until it turned out that the public are easy to convince that effective
> prosecuters should lose their jobs if they visit sex workers.

Well,at the time, I wondered how they nailed Spitzer. In retrospect, I suspect
this was one of the first parallel construction scenarios.

However, I don't really care if people visit sex workers. Nevertheless,
Spitzer was an anti-prostitution _crusader_. He deserved to lose his job for
the hypocrisy.

------
wernerb
[http://www.businessinsider.com/report-mtgox-subpoenaed-by-
us...](http://www.businessinsider.com/report-mtgox-subpoenaed-by-us-
prosecutor-2014-2#ixzz2uOHMdfy0) is more informative

~~~
kevingadd
Oh, you're right. When that page first went up it was one sentence with a link
to the WSJ.

------
nwh
Article without the paywall —
[http://archive.is/JWikk](http://archive.is/JWikk)

~~~
AngrySkillzz
It's pretty embarrassing that you can read most of the article with the
paywall intact.

~~~
MBCook
That's amazing. If I'd subscribe to see that article, I would be pretty
pissed.

~~~
fabulist
I think its more intended for other news outlets.

------
captainchaos
Ok, at the risk of sounding completely naive...

I've been following this story for a while, and it seems that no one can say
for sure if this is embezzlement or gross incompetence. Based on leaked memos
it seems to be most people are learning towards the latter, but I'm curious if
there's any evidence either way.

Based on the claimed transparency of Bitcoin, I would have expected
embezzlement on this scale to have been noticed earlier, or at the very least
have people be able to follow the Bitcoin trail to determine what is actually
happening.

Am I wrong or just missing something?

~~~
rwallace
My gut feeling, speaking as an outsider reading the news, is Karpeles was
never dishonest, just hopelessly out of his depth and too stubborn to ask for
help.

In the normal course of events I also would expect money disappearing over
that long a timescale to have to have been embezzlement by an employee, and I
would certainly consider that a plausible hypothesis here. On the other hand,
reading the IRC chat transcript where Karpeles talks about how he's been under
so much stress that it's ruining his health, it's obvious he made the classic
mistake of trying to work so many hours he couldn't think straight.

So I'm guessing either he delegated the accounts to someone with no oversight
and it was an inside job... or he refused to delegate, which meant the
accounts were in the hands of someone too tired to be capable of coherent
thought, which amounted to the same result as nobody looking at them, and an
outside job would suffice.

Moral of this story for customers: don't risk money you can't afford to lose.

Moral of this story for founders: don't try to be a hero and do more than one
job's worth of work, especially in a domain where a screwup may cause
significant harm.

~~~
mattm
I've spent way too much time following this and I agree with your thoughts as
well. Karpeles seems to personify the phrase we know in software development -
that he knows just enough to be dangerous but not enough to be competent.

I was stunned at this blog post
([http://antonopoulos.com/2014/02/25/statement-on-mt-
gox/](http://antonopoulos.com/2014/02/25/statement-on-mt-gox/)) where Andreas
Antonopolous said:

"During this time, Mark Karpeles was active on the forums and developer boards
and appeared to be implementing fixes to Gox software to address Tx-Mal."

He really should not have been looking for solutions himself.

~~~
jnbiche
>He really should not have been looking for solutions himself.

Actually, I think at this point he had waited too late to ask for competent
help. Here we have a custom Bitcoin client, written in what is probably a
tangled hairball of PHP. The Bitcoin protocol is already fairly complex, and
even Bitcoin software written by competent developers using modern software
development methods can be tricky to understand (see btcd for an example of a
well-engineered client).

How many engineers could fix that in a reasonable period of time?

Add to that the fact that there are only a handful of competent programmers in
the world who also are experts at the Bitcoin protocol, and I'm not convinced
that he could have convinced any of them to take on the task. Most of them are
already wealthy, and they have a lot of reputation to lose by trying (quite
possibly in vain) to fix a dying company.

Mark's biggest mistake was in trying to do this all himself once Bitcoin
really took off. So yes, a valuable lesson for entrepreneurs.

------
ck2
New York wants to be the big dog in regulating crypto-currency, which almost
feels like they are protecting and working at the behest of the banking
industry headquartered there.

But I do not understand how a NY prosecutor can subpoena a Japanese business?

~~~
ubernostrum
_But I do not understand how a NY prosecutor can subpoena a Japanese
business?_

If you offer services to, or engage in financial transactions with, a person
in Jurisdiction A, Jurisdiction A can enforce its laws on you. You should not
in any way be surprised by this fact.

~~~
thirsteh
That's all well and good, but Mt. Gox likely won't conduct any more business
in NY. It gets even more problematic if they don't actually operate any legal
entity in the U.S.

The U.S. may enforce its laws upon U.S. entities, but it has no authority to
do so on e.g. a Japanese one, unless a treaty/agreement exists that
facilitates it. This is why China-only companies that engage in IP theft (or
vice versa) aren't being hauled into court on the daily. (You wouldn't be
surprised if I said China can't enforce its laws on a NY company, right?)

~~~
wpietri
The US can enforce it laws on anybody it can get its hands on. For example
Joaquin Guzman, the drug kingpin recently captured in Mexico faces charges in
a variety of US states, even if he never set foot there. [1]

Mexico has to agree to hand him over, but once the US has him, they can
happily convict him of crimes committed while he wasn't physically present in
the US.

[1] [http://www.npr.org/2014/02/25/282359473/arrest-of-el-
chapo-n...](http://www.npr.org/2014/02/25/282359473/arrest-of-el-chapo-not-
expected-to-slow-chicago-s-drug-trade)

~~~
thirsteh
Oh, sure, but it's contingent on him being in the U.S. (Same for a company.)
It is Mexico's decision to "extradite" him.

Similarly, Brazil could convict me of whatever it wanted if I went there. Then
it just becomes a diplomatic issue.

------
pjan
Also: Japan authorities looking into closure of Mt. Gox bitcoin exchange

[http://www.reuters.com/article/2014/02/26/bitcoin-mtgox-
japa...](http://www.reuters.com/article/2014/02/26/bitcoin-mtgox-japan-
idUST9N0LP00020140226)

------
pmorici
For anyone thinking, "O good the government is here to investigate and get our
money back" I wouldn't get too excited I'd say this is more likely them
wanting to investigate Silk Road related Bitcoin activity than any desire to
help those screwed by Gox.

~~~
mbreese
No... people lost a lot of money, including investors and investment funds
located in the US. This is a case of the gov't doing their jobs and likely has
nothing to do with Silk Road. It might have something to do with the MtGox
funds previously confiscated by DHS(?) though.

~~~
pmorici
The previously confiscated funds were directly related to the Silk Road busts.
DHS officials inferred as much in their testimony on Bitcoin before congress.

[http://thegenesisblock.com/mt-gox-seizures-linked-silk-
road-...](http://thegenesisblock.com/mt-gox-seizures-linked-silk-road-fed-
testimonies/)

The article implies this wasn't just issued today, it is just being reported
now but it says it was actually issued "this month". You know what else
happened in that time frame? Charlie Shrem was arrested for Silk Road related
Bitcoin charges.

I mean It would be great if they were investigating the insolvency but I'd say
there is a good chance it isn't related to that.

~~~
mbreese
I was talking about what was seized from their accounts with Dowalla. Who
seized that?

~~~
pmorici
Yes, that is the same as the Dwolla seizure. They had a Wells Fargo Business
bank account linked to their Dwolla account. That is the 5 Million that was
seized purportedly in connection to the investigation into Silk Road.

~~~
mbreese
After looking it up, the seizure wasn't related to the Silk Road case. It was
because MtGox wasn't properly registered as a money transmitter and was
operating their accounts in the US under false pretenses [1].

I don't think it's necessarily possible to link the Dowalla event to Silk Road
directly (which was the FBI, not DHS).

[1] [http://techcrunch.com/2013/05/16/mt-gox-dwolla-account-
money...](http://techcrunch.com/2013/05/16/mt-gox-dwolla-account-money-
seizure/)

~~~
pmorici
At the time of the seizures that was the stated reason but later when
officials were testifying before congress they implied that the enforcement
against MtGox was related to the SR investigation. They hadn't moved on SR at
the time so they were keeping quite about the scope of their full intentions.

[http://techcrunch.com/2013/08/23/feds-seize-
another-2-1-mill...](http://techcrunch.com/2013/08/23/feds-seize-
another-2-1-million-from-mt-gox-adding-up-to-5-million/)

~~~
mbreese
What you linked to has nothing to do with SR or even congressional testimony.
It's filling out the rest of their money-transmitter issues. First, they
seized funds from Dowalla, and then from Wells Fargo. This was the WF seizure.

Seizing MtGox's USD funds may have had an effect on SR, but that _wasn 't_ the
reason why they were seized. It was a money laundering issue, plain and
simple. Remember, the funds were seized by DHS and the FBI was in charge of
the SR case (which wasn't even against SR as an entity, but the owner/operator
as a private citizen). I'm sure the FBI and DHS probably share data, but that
would have required a lot of interagency cooperation for what is a pretty
small matter. DHS was more concerned with blocking the money laundering
possibilities than they were with blocking SR. Granted, DHS may have learned
about MtGox from the DEA/FBI while they were investigating SR.

I wouldn't assume the gov't really cares that much about Bitcoin. They just
want the players in Bitcoin to play by the existing rules.

------
fnordfnordfnord
It's not much of an article as it is only two paragraphs. Get your popcorn
ready for when stuff starts hitting PACER/RECAP.

------
gojomo
Wouldn't it be funny if malleability has confused MtGox about its own
hot->cold->hot wallet transactions, and it really has way more coins than it
knows?

Then, when MtGox finally has someone with half a clue patch things & rescan,
700K BTC reappear, and they post on their homepage, "Nevvvvvermind – it was
all a bad dream."

~~~
exit
have you seen the irc chat log with Mark Karpeles? it almost seems possible
that that is exactly what has happened:

[12:02] <JonWickedFire> How much did you lose yourself?

[12:04] <MagicalTux> Well, technically speaking it's not "lost" just yet, just
temporarily unavailable

[12:05] <JonWickedFire> Well, how much is unavail for you?

[12:06] <MagicalTux> I'm not even sure

[http://www.wickedfire.com/shooting-shit/179038-my-
conversati...](http://www.wickedfire.com/shooting-shit/179038-my-conversation-
mark-karpeles-mtgox-2.html#post2164682)

~~~
euank
If you read the context, it's quite clear that he's only referencing his own
bitcoins.

    
    
        [12:02] <JonWickedFire> How much did you lose yourself?
        [12:04] <MagicalTux> Well, technically speaking it's not "lost" just yet, just temporarily unavailable
        [12:05] <JonWickedFire> Well, how much is unavail for you?
        [12:06] <MagicalTux> I'm not even sure
        [12:06] <MagicalTux> didn't check my wallet before pushing the site offline
    

That final line makes it very clear that he meant he didn't know how many BTC
he had in MtGox and thus "lost". How you clipped it, it makes it sound like he
might mean he doesn't know how many are temporarily unavailable on mtgox as a
whole.

~~~
exit
i don't follow your reasoning. the final line tells us that he doesn't know
how many btc he personally was credited with in the mtgox wallet.

what he says before that tells us that

a.) his btc are in the same "situation" as those of regular mtgox users,

b.) he believes his btc and thus everyone else's are "just temporarily
unavailable"

------
fabulist
s/underscoring the risks of bitcoin/illustrating the risks of speculating,
especially with companies long known to be unreliable/g

~~~
sugerman
s/investing/speculation/

~~~
fabulist
Oh right, thanks mate

------
captainmuon
If the government really wants to kill bitcoin, its a bit surprizing that they
are pursuing this legally. Instead they should make it such that people cannot
sue for their losses. They should define legally that bitcoin is neither money
nor commodity, that it is of zero value, and that this is so obvious that it
is impossible to commit fraud with it. It's your own fault if you pay money
for something such obviously fraudulent. (Not that this is my opinion!)

If customers would not be able to raise claims, and frauds would get away with
impunity, this would quickly destroy any honest businesses in bitcoin, and
reduce it to a fringe phenomenon some people use to buy drugs anonymously.

I'm guessing the government really doesn't want to do that, because while it
would reduce bitcoin to the underground, it would become even more
uncontrolable. Rather, they'll try to canalize it through the existing banking
system. Its already hard now to buy bitcoins anonymously, and it will probably
become harder.

------
theklub
I can't help but feel like at this point in time buying Bitcoin and helping
sustain the price is making criminals rich.

------
geuis
Stop linking to paywall sites, please.

------
einhverfr
Well yeah....

Keep in mind this means nothing other than that a crime is being investigated.
We know a crime took place. It's a good thing it is being investigated.

What we don't know is what crimes are being investigated and the article
doesn't provide any of that information.

------
thinkcomp
I'm not a lawyer, but what's likely to happen here is the following:

Soon, Mark Karpeles and/or Tibanne Kabushiki Kaisha and/or Mutum Sigillum LLC
are likely to be charged with at least one violation of 18 U.S.C. § 1960 for
not having a money transmission license in any state. Even though Karpeles
broke state laws, it's a federal crime by extension. He may be extradited from
wherever he is to the U.S. to stand trial in federal court.

What's interesting is that Coinbase, BitPay, Dwolla and every other
current/former Bitcoin exchange company is in the exact same boat legally
speaking, and yet people still trust them because of deliberately misleading
statements they've made on a regular basis, such as last night's joint
announcement. None of them are operating legally, whatever they may say. But
mostly they don't say, because my company is already suing two of the three
over this very fact. Many of them can be linked to Mt. Gox; Dwolla has already
stopped dealing with Bitcoin as a result of NY DFS's subpoenas to the best of
my knowledge; US DHS also investigated Mutum Sigillum LLC and froze its
assets.

The irony is that Mt. Gox is most likely in Japan in the first place because
of the insane state regulatory structure in the U.S. So our state MTLs push
entrepreneurs out, leave consumers high and dry, and make crashes of the sort
we're witnessing now more likely. We need a federal regulatory regime; it's a
shame that the other entrepreneurs and investors affected--including the ones
who run this site--are too cowardly to come out and say it publicly as I have.
There's only one exception: Greg Kidd, who is invested in a number of payment
companies, including Coinbase, and now works for Ripple.

[http://fedpaymentsimprovement.org/wp-
content/uploads/Greg_Ki...](http://fedpaymentsimprovement.org/wp-
content/uploads/Greg_Kidd-Ripple_Labs-120813.pdf)

Here's my suggestions for what should happen now:

[http://www.thinkcomputer.com/20140214.cfpbcomment.pdf](http://www.thinkcomputer.com/20140214.cfpbcomment.pdf)

~~~
mattm
Mt. Gox is in Japan because Mark Karpeles moved to Japan well before Mt. Gox
started up. Here is his blog -
[http://blog.magicaltux.net](http://blog.magicaltux.net)

~~~
jnbiche
That's true. thinkcomp's argument probably should be that the reason the
largest exchange is in Japan is because of U.S. regulatory regime. There have
been legitimate contenders (TradeHill) who had to shut down because of
regulatory issues, or banking issues related to regulatory issues.

That's not even counting the serious entrepreneurs who passed on the
opportunity to establish a competent exchange because they knew it wasn't
possible to establish one legally without tens of millions of dollars.

------
tomelders
If a bank lost everyones money, we would expect governments to subpoena them.
This is news like "Sun rises for 1.6425 × 10^13th time in a row" is a
headline.

~~~
mcv
The news here is that bitcoin is apparently considered to be money by this
prosecutor. Or at least close enough to it.

------
negamax
This month. There's no date. Let's not relate it to recent events. Actually
this kind of insinuates what's happening.

------
MWil
nonpaywall?

~~~
SDGT
<strike>Seems to be unpaywalled now?</strike>

edit sry, heres a screenie: I got some "one time pass"
[http://imgur.com/6IrmmLo](http://imgur.com/6IrmmLo)

edit: text from article. Sorry I just hit print screen and auto uploaded by
reflex.

Mt. Gox Receives Subpoena From Federal Prosecutor: Source

Bitcoin exchange Mt. Gox has received a subpoena from federal prosecutors in
New York, according to a person familiar with the matter, dealing another blow
to the embattled marketplace for buyers and sellers of the virtual currency.

Mt. Gox, one of the largest bitcoin exchanges, shut down on Tuesday,
underscoring the risks of bitcoin, the virtual currency that has seen a
meteoric rise in the past year. The subpoena was sent this month and asked Mt.
Gox to preserve certain documents among other things, the person said.

Write to Christopher M. Matthews at christopher.matthews@wsj.com

~~~
fabulist
I think you have a subscription then. I'm still hitting the paywall.

------
yeukhon
Ah. I was sort of right :)

[https://news.ycombinator.com/item?id=7296597](https://news.ycombinator.com/item?id=7296597)

Though not FBI, this is interesting.

