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Mt. Gox Bankruptcy Wasn't Really a Bust (bloomberg.com)
114 points by rb808 on Nov 14, 2017 | hide | past | web | favorite | 74 comments

Mark Karpeles is quite active on Reddit and has been very open about the whole bankruptcy process. You can read all about it in his comments: http://reddit.com/u/magicaltux and in the subreddit http://reddit.com/r/mtgoxinsolvency

His preference would be for the bankruptcy trustee to directly distribute the bitcoins to claimants, which would actually be a much faster and easier way to distribute the money than the traditional banking system, and has the added advantage that the bitcoins wouldn't need to be sold. However, the Japanese bankruptcy process is extremely unlikely to allow this. Also the effect of 200k bitcoins suddenly being distributed to thousands of people around the world might be to crash the bitcoin price, as some will sell immediately and more will probably sell when the price declines.

He realizes that if he receives any money after the bankruptcy he will immediately be tied up in even more lawsuits which will drag on for years if not decades. He has said that in this scenario he would try to distribute the money to claimants rather than keeping it in an attempt to avoid these lawsuits, but it seems unlikely to work. He may be cursed to receive hundreds of millions and have it tied up in lawsuits for the next decade, ultimately ending up in personal bankruptcy again.

He was active and quite helpful but after the last creditors' meeting (when it was officially announced that any surplus will go to shareholders) he deleted all his posts in the mtgoxinsolvency reddit. He claimed it was because of abuse and death threats. I don't doubt that the threats played a part in his decision but I also think that the deleting of his reddit history is an attempt to get rid off of anything that might be used against him in future lawsuits.

Also, he never went as far as claiming that he'd distribute anything he gets to creditors. He's always been quite vague about it and never answered directly when asked about it.

Wow, I didn't realize he'd deleted all his older posts. Interesting that he continues to post afterward; he just can't stay away. The information he posted has been fascinating but it certainly is not in his best interests to post about the bankruptcy on reddit so I can't say I blame him. His lawyers probably tore him a new one when they found out about it.

What's that called when you actively delete information in order to hide it from opposing counsel and law enforcement?

Destruction, or spoliation, of evidence.

Has this guy ever done anything else but be vague?

In theory, why are lawsuits after this possible? Doesn't the bankruptcy court asks all debtors to come ahead until x date and after that the court decides? I know you can sue for everything but why would they have any chance?

edit: Thanks for the asnwers. So, Karpeles will have assets and he'll have to answer for his negligence or failure to manage his corp properly. Maybe he'll file for personal bankruptcy before getting any money :)

Because he is also on trial for embezzlement. Bankruptcy just clears away regular debt owed by the company, but he can still be sued individually for illegal actions he (may have) committed.

If he embezzled company assets, does he not owe that debt to the company?

Bankruptcy is for settling debts, not judging whether someone's actions led to your financial losses. In this case, the amount of the debt was determined by the value at the time the bankruptcy trustee took control of Mt. Gox's assets. That doesn't mean Gox users haven't been harmed by being deprived of an asset that has appreciated significantly due to misconduct or fraud by Karpeles et al.

The corporate bankruptcy deals with debts of the corporation; it does not deal with liabilities of corporate officers for misconduct, including ones for acts for which they would have been, e.g., jointly and severally liable with the corporation, and which the corporation would likely have paid for fully had it been solvent.

>Someone will sue Mark Karpelès until he doesn't have a billion dollars' worth of bitcoins any more. The bankruptcy estate might only owe the customers $500 per bitcoin, but they -- and regulators, etc. -- might have a case that Karpelèsowes them the remainder, due to negligence or unjust enrichment or general come-on-man

I...and perhaps I'm being to glib...find it highly amusing that the same people making the argument of rejecting states and fiat currency and regulation and structure are frustrated that their attempts to use those structures requires them to adopt all the parts of it, not just the parts they need to recoup their losses from a con man.

This is true for most crypto communities, but Bitcoin in general has a staggering number of individuals looking to get rich quick. They don't care about the philosophy or idea. They just want money.

I recognize I'm misunderstanding you on purpose, but there are many crypto communities that contain virtually zero people looking to get rich quick.

I do not believe that for a second.

I believe it totally - it follows from 'there are many crypto communities with virtually zero people'.

I wasn't clear enough. For decades "crypto" has meant "cryptography".

> find it highly amusing that the same people making the argument of rejecting states and fiat currency and regulation and structure are frustrated that their attempts to use those structures requires them to adopt all the parts of it...

This holds true for so many Bitcoin related disputes. I also find it highly amusing when bitcoin using champions of rejecting regulation and structure mysteriously seem to need a great deal of it when heaven forbid things don't go as they hoped.

Anarchist Profits And Socialized Losses

Explain to me how getting back some 5% of what you're owed, when they recovered 80% of it, is "socialized losses"?

Also explain to me how this is similar to 2008.

well for starters it was a joke not a serious argument.

Not entirely new. 2008? Profits to the banks losses (bail-oiuts) to the tax payer

I was trying to play off the phrase 'privatize profits and socialize losses' from that time period.

Yes because bitcoin is all about not having courts. /sarc

There is a pretty big difference in my mind between the kind of over regulation people dislike and simple enforcement of basic fraud and theft laws.

For sure that argument can probably be made, but that's not really the point I think myself or the parent comment is making. If you follow the kind of "code is law" style rhetoric of some crytpo-currency evangelists, we can supposedly build a system that doesn't require "laws" or regulations as we know them today at all. Reality it seems often disagrees, especially when disputes inevitably arise. I'm simplifying greatly, but there's some truth to this idea in practice I think.

Could you explain, in detail, that difference?

The former reflects classical liberalism, which is the belief that the government should get involved when fraud or aggression has occurred, and deter crime through deterrence.

The current regulatory system reflects the belief that government ought to preempt crime by creating centralized gatekeepers that impose blanket bans on entire categories of voluntary exchange (e.g. securities issuance), that are only lifted on a case-by-case basis if one is approved/registered by/with that gatekeeper.

Probably things like bailouts, the Fed insuring things it has no business insuring, etc. Basically he seems to be espousing libertarian economics - prevent people from actively harming me, but don't try to otherwise actively participate in the financial system.

Whether or not they profit him, obviously.

Yep. When I need the law on my side, it's "simple enforcement". When the law is on the other side, it's overregulation!

I know. The bizarre conflation between advocating for a free market and advocating anarchy is surprisingly common any time the topic of cryptocurrency comes up.

This is exactly why I love Bitcoin threads like this so much, they always contain a bunch of idiots who inevitably lose their Dunning-Krugerrands to scammers and insolvent exchanges, of which all the regulations with fiat they claim to hate so much are there to prevent in the first place.

To be fair, the hardcore crypto-anarchists and such would never keep their money on exchanges. Ideally they'd keep money on cold wallets, physically secure.

But also they don't care about usability, which sucks in that case. Being your own bank sucks, pretty much.

So this bunch of idiots can't access the legal system or expect justice, unless they fully accept the inevitability of currency debasement or the revolving-door system between banks and government?

That's exactly why I love bitcoin threads like this. Because of the sour grapes who stood by the sidelines over the past 8 years.

Btw, applying "plain" justice or bankruptcy to insolvent financial institutions was exactly what they didn't do in 2008. Listen to the recordings of Irish bankers how they would approach regulators. "If they say, if they saw the enormity of it up front, they might decide, they might decide they have a choice."

Instead of putting skin in the game of people like this, they socialized the losses, suspended mark-to-market and papered it over with ridiculous amounts of legislation that was written with the help of the same people who were bailed out. Almost nobody went to jail. That's probably why we have blockchain to begin with and why 10 years later we'll have to go through something similar or worse.


>this bunch of idiots can't access the legal system or expect justice

Sure they can, but they should also not be surprised when a lack of controls on currency transfers result in their shit getting stolen, when part of the 'appeal' of Bitcoin to so many people is that there's no controls on it.

>sour grapes

Hahahahahahahahahahahahaha. Bitcoin is fucking stupid, a huge waste of electricity and CPU power, and its ultimate destiny is to crash and burn. Some people might make money off of that, good for them if they do I guess, but I don't really care either way.

>'the banking system is corrupt and bad'

Agreed. People didn't go to jail that should have, and society suffered for it. I don't agree that Bitcoin is the solution to those problems, though.

Bitcoin: Dunning-Krugerrands is going on a tee shirt. That phrase is my million-dollar riff. thank you sir (or madam, or space donkey. we're not choosy in cyber space)

I'm going to go out on a limb and guess that there are plenty of people who don't want more of their currency printed but still think theft is wrong.

That legal principle of "come-on-man" is extremely useful. If only it existed.

I demand your courts help me but not using the currency your courts operate in is like Calvin Ball for cryptocapitalists.

>Calvin Ball for capitalists

I'll pocket this phrase for future use.

Just pay me in bitcash rather than bitcoin and we won't have a problem.

Well it kind of does exist in the sense that common law courts will revert to basic principles of equity and fairness when there's nothing applicable in law or precedent.

So legal system and monetary system are a package deal now? We can't sue a criminal unless we cease the search for alternatives to currency debasement, bailouts and finance cartels?

> After accounting for smaller amounts of nonbitcoin assets and liabilities, Mt. Gox has a surplus on paper of ¥111 billion, or $977 million, that could go to its shareholders, according to a calculation by The Wall Street Journal.

So the shareholders of an incompletely run company should have dibs on the capital gains of assets they failed to secure properly? To me, this seems neither fair nor societally beneficial.

If someone lends a company their property, after which the company loses it, and the price of this property goes up, it just implies that the creditors need more money to get back the property that belongs to them - regardless of whether we’re talking about bitcoins, gold or lambs wool. Surely, the goal of bankruptcy must be to make creditors whole, not enrich shareholders of the company that failed to live up to its promises.

Agreed. The only reason MtGox has that paper $1b is because they didn't allow anyone to access their money. They lost a bunch of everyone's money, then kept hold of what they had left and waited for the Bitcoin price to rise.

Surely they don't get to keep the extra. It wasn't even theirs in the first place!

If anybody wants the full sordid history from an investigative standpoint, check out Kim Nilsson's great writeups[1][2] and presentation[3].

[1] http://blog.wizsec.jp/2017/07/breaking-open-mtgox-1.html

[2] http://blog.wizsec.jp/2017/07/comments-on-mark-karpeles-tria...

[3] https://www.youtube.com/watch?v=l70iRcSxqzo

It's not theirs anymore either. It is now overseen by the bankruptcy court, and the bankruptcy court is deciding what to do with it according to Japanese bankruptcy law. Unfortunately the law is extremely slow, strict, and conservative. They may not reach a resolution for many years, during which time the value of Bitcoin could spike 10x or crash to zero. The resolution eventually reached may or may not make any rational sense. It's a fascinating situation from the outside, though surely maddening for anyone involved.

Another great piece by Matt Levine. I think legally the customers are only entitled to what they invested, but at the same time, Mt. Gox should not get that as it was profits from nefarious gains. So I think that money should go to the government as a penalty. Make the customers whole, zero out Mt Gox debt and obligations, and rest to the government.

I'm curious if the same bankruptcy principles apply outside of cryptocurrency exchanges.

Let's say I owned 1000 shares of Google five years ago, and my broker went bankrupt. At the time, Google was trading at $333 per share.

Today the court liquidates the broker's assets to distribute to creditors, and Google is trading at $1050 a share now.

The court wouldn't use Google's five-year-old share price and let the broker keep the rest. Instead, the court would distribute the actual proceeds of the liquidation.

Why is it any different with Mt. Gox? Why wouldn't the court sell the bitcoin at current market prices and distribute the proceeds among the creditors?

Customer assets are separate from brokerage assets (due to rule 15c3-3), so if a broker goes bankrupt, your stock shares are unaffected. If securities were lost due to theft or fraud, the SIPC protects them up to $500,000. To (sort of) answer your question, the SIPC guarantees the number of shares, not the cash value.


That is also the underlying problem, they DON'T have enough bitcoin to do exactly that...

More importantly (note: IANAL), the bitcoins converted, by law, to a specific valuation on a set date when the assets are frozen. Per the court, years ago, the amount owed to each creditor was set in the court's working currency (i.e., the Yen) and the court doesn't deal in Bitcoins.

In your example, during the bankruptcy process, they would set a date of valuation and you would be entitled to the value of the shares on the date when the bankruptcy was set. Future lost profits are not the purview of the bankruptcy court.

> Naturally, the court wouldn't use Google's five-year-old share price, they'd use the actual proceeds upon liquidation.

Do you have a citation? I'm not an expert on Japanese bankruptcy law so it's not obvious to me.

Why does the government get anything at all, what did those guys do.

Well in addition to Mt. Gox being in bankruptcy proceedings right now, Mark Karpelès is also going through a personal bankruptcy process as is his holding company , Tibanne, which holds an 88% share of Mt. Gox.

I've got to imagine that he wants the Mt Gox situation handled ASAP so he can get any funds from it to solve his own bankruptcy issues.

I'd imagine that this provides a pressure point for the Mt Gox stakeholders where they might be willing to play ball and let the bankruptcy proceedings work at a much faster pace in return for a much larger portion of the remaining Mt Gox assets.

Having said that, according to the WSJ...

> "The customary period in which creditors may dispute the trustee’s decisions on claims has ended."

...so perhaps Mark Karples may decide to play hard ball and hope that the creditors just want the coins sold and money disbursed before bitcoin has another chance to collapse?

Lots of fun game theory to think about here.

One of the sticking points holding up the bankruptcy process is the outstanding CoinLabs lawsuit[1]. There's not much room for Karpeles to maneuver due to the cascading bankruptcy proceedings against both MtGox and Tibanne.

A small number of MtGox ex-customers cottoned on quickly to the possibility that any excess surplus might accrue to the shareholders and filed claims directly against Tibanne. The rest of the claimants have been left to organize amongst themselves. One such effort recently organized is MtGoxLegal[2].

The current sentiment is to try to convince the Japense court trustee that the principle of unjust enrichment[3] should apply, but nobody knows if this will hold under Japanese bankruptcy law in this situation.

Fun times abound.

[1] https://themerkle.com/mtgox-phoenix-rises/

[2] https://www.mtgoxlegal.com/

[3] https://en.wikipedia.org/wiki/Unjust_enrichment

"Again, the main function of a bitcoin exchange is to get its bitcoins stolen..."


> "Again, the main function of a bitcoin exchange is to get its bitcoins stolen..."

> Really?

Really. Is there any other reason to open a bitcoin exchange other than to have fools give you eTuplips that you can abscond with at a whim?

I mean you might think that running an exchange helps further dreams of a bankless future, but in the real world, most cryptocurrency exchanges went poof, either to steal bitcoins or because they couldn't convince fools to part with enough bitcoins to steal.

But the heady days of an exchange being hacked or closed by fraud every weeks are over. If you want your bitcoins stolen, I recommend investing in ICOs.

I recall that https://bitcoinbuilder.com allowed people to purchase locked up GOX coins during this fiasco. This would be a good time to check up on those accounts.

So what happens when Karpeles needs to sell all of those bitcoins to make the creditors whole in yen? And also: when will this happen?

If a creditor can be found who is willing to assign some value to the asset and then provide a loan secured by said asset then at least in the short term it is not a problem. I believe this is fairly common and is not likely to be difficult to find. Of course any such deal would likely include a detailed plan for the sale of at least as much of the asset as would be needed to repay the loan.

At the time "early" in the proceedings, there was an attempt[1] to go through what is called Civil Rehabilitation[2] under Japanese restructuring and insolvency law, but this was denied by the Tokyo District Court handling the MtGox bankruptcy.

Fast forward now several years, perhaps this is another option on the table for another creditor willing to try again.

[1] http://www.reuters.com/article/us-bitcoin-mtgox/mt-gox-set-t...

[2] https://content.next.westlaw.com/Document/I2030ee371cb611e38...

In 2014 when MtGox went bankrupt it took the Bitcoin market price down with it into a multi year bear market. One wonders if the sale of these $1.5 billion in coins won't bring about a second Goxing so to speak if they spook the market by selling off such a massive number of coins.

So, I had bitcoins stored at MtGox at the time all of them were stolen or "disappeared". Can anybody tell me if there is some action I can take to claim them back ? Do I have to take legal action ? Thank you!

I think, and I could be wrong, that you have to have lodged a claim years ago [1]

  Users, who are bankruptcy creditors, were eligible to make bankruptcy claims against MTGOX regarding Bitcoin or cash through this system until at 12 noon July 29, 2015 (Japan time).

  After 12 noon on July 29, 2015 (Japan time), the only things that a User will be able to do using the Online Method will be to (i) view bankruptcy claims that he or she has filed himself or herself and (ii) transfer his or her bankruptcy claims to another person. However, nearer the time of distribution, the bankruptcy trustee is planning to give Users an opportunity to use this system again to make changes to the details of their bankruptcy claims, other than increasing the amount of the bankruptcy claims that Users have filed (for example, changes in their addresses or company names). Users will not be able to file new bankruptcy claims or increase the amount of the bankruptcy claims that they have filed.
[1] https://claims.mtgox.com/assets/index.html#/

> Mt. Gox . . . suffered the fate of all bitcoin exchanges, and had its bitcoins stolen.

Wow. This is an embarrassing demonstration of the authors ignorance of the current state of the cryptocurrency market.

It is appalling that former CEO Mark Karpeles may benefit from the exchange collapse he caused through either incompetence or thievery. But it's hardly different from the rewards paid out to those who caused the US economic melt down in 2008.

Matt Levine has a history of ribbing on bitcoin exchanges. He doesn't really lay it out in this post, though, so here is a quote from an earlier one[1]:

> The other reason not to trade bitcoin is that, as far as I can tell, the fate of any bitcoin exchange/wallet/bank/custodian is to be hacked. That is just how bitcoin works: You buy bitcoins on an exchange, and you store them at the exchange because it's a pain to keep your private key yourself, and then the exchange gets hacked and your bitcoins get stolen. ("There have been at least three dozen heists of cryptocurrency exchanges since 2011," Reuters noted[2] last week.)

In general, his Money Stuff commentary tends to have a sort of sarcastic reductionist vibe to it. Whether the ignorance is true or feigned for effect really depends on the reader's perspective, I guess.

[1] https://www.bloomberg.com/view/articles/2017-10-03/bitcoin-t...

[2] https://www.reuters.com/investigates/special-report/bitcoin-...

It sounds like TV commentators mocking the Internet in 1994.

Or sane people mocking Juicero and Theranos here on HN a year or two ago.

The existence of mockers is proof of nothing.

It is not unfair to say that the majority of Bitcoin exchanges to date have been either intentionally fraudulant or incompetently run. This includes MtGox.

Here's a talk that discusses the financial situation at MtGox and the raging dumpster fire that its security system was when Mark Karpeles bought it.


It's hard to say if the poor security was due to a staggering level of inexperience and thoughtlessness, or if the previous owners had left it open so they could pilfer money as easily as possible before the whole house of cards collapsed. It's hard to imagine a financial services administrator leaving an unsecured Windows file share open to the Internet with all of the private keys on it, but somehow this was considered to be not a problem at MtGox.

That's a joke, not ignorance.

It's an ignorant joke designed to deligitimize cryptocurrency in the eyes of the reader.

Simply observing cryptocurrency users and exchanges in action does enough to delegitimize them, I'd think.

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