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The Mt. Gox alleged insolvency document has been posted (scribd.com)
333 points by jordhy 520 days ago | 198 comments



It is real - this is an internal strategy doc shared between the exchanges and other Bitcoin people with MtGox and it was never supposed to be public. Something has gone wrong with the plan.

Here is what i've worked out so far what has happen. MtGox worked out a while ago that they were insolvent, so they reached out to prominent members of the Bitcoin community to help them out.

The plan was instead of just having MtGox make a statement saying 'we are insolvent, no more money' they would team up with the other exchanges and come up with a plan where they could wrap that news around some 'good' news.

This document is the draft of that plan as it was being worked on by the exchanges and MtGox.

The 'good' news parts would be:

1. MtGox customers would be transferred to a new entity Gox

2. Karpeles wouldn't be involved

3. The new exchange would have old 'owed' figures from MtGox

4. The other exchanges would attempt to partially bail out the MtGox holders

edit: point 4.5. the Mt Gox closing statement would shift blame away from Bitcoin - which is important. MtGox has spent the last 3 months blaming on a 'bitcoin bug' what was a failure of their own accounting and auditing system. A lot of media bought up the 'bitcoin bug' story.

5. The other exchanges and Gox would announce all this at the same time on Tue 25th Feb

6. For some reason the exchanges did their part but Gox didn't do their part

7. Someone from the exchanges leaked this internal strategy doc that was written between MtGox and the exchanges to show what should have happen today but didn't since MtGox bailed out on their part of it.

We are now stuck in a situation where part of this internal plan has been implemented (the exchanges, gox.com being registered) but the majority of it has not.

edit: most interesting q's for me atm are: why did MtGox reneg on this plan (or have they?), when did MtGox finally reach out for help? and how long have these insiders known that MtGox is in trouble - there was a huge sell spike in MtGox coins days ago.

edit 2: note that outside of verifying this doc with somebody who works at one of the companies, since this doc was leaked and published the following has happen, as outlined in the doc:

* the other markets released their joint statement

* the gox.com domain was registered/activated

* trading halted

edit 3: you may have noticed slide 8 of the presentation is censored, i've managed to remove the black bars. It is details of MtGox's financials, image here:

http://i.imgur.com/Rb5MIcg.png

Google Doc version here:

https://docs.google.com/document/d/1miioFP1oFnLa8OQ1MZ91ABUD...

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This is the most likely explanation that I've heard so far and lines up with their Twitter account being emptied, gox.com being transferred, the statement from the other exchanges etc.

Completely rebuilding an entire exchange from the ground up in 1 month seems insane. I would not like to be in that office right now.

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How in the world do you keep people on staff through this?

Maybe they individually own a lot of Bitcoins and are thus, indirectly, big equity holders.

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But major aspects of this plan are delusional. Take p. 7, "To reduce liabilities":

"Coins for equity,…"

You can't just improvise a private-offering of shares for Bitcoin in the envisioned timeframe. The other exchanges know this. The kind of people with the deep pockets and credibility to consider a reboot/turnaround would know this.

"…coin donations,…"

Who's going to donate to a distrusted brand with large, poorly-understood multi-jurisdictional legal problems, which also starts out 633K BTC ($280 million, at $450/BTC) and $33 million USD in debt?

"…and cash injections to buy coins at the cheap MtGox price are some options among many."

THERE ARE NO COINS TO SELL AT THE CHEAP MT GOX PRICE, if the rest of the document is to be believed. Even if they launched this plan and kept that fact secret – against the other implied steps of bringing in credible new expert team members – there's no net-improvement in the entities' position if it keeps selling BTC (adding BTC-denominated debt to its balance sheet) at a lower price it would take to acquire BTC elsewhere. That's not even competent as fraud: you'd want to buy at the artificially-low price, not sell.

It's nonsense on its face, even according to its own terms.

I can believe this is a parody of some industry bailout idea that was floated… but recrafted to poke fun at it. (The proposed April 1 relaunch and reasoning evocative of "too big to fail" bailouts are more hints.)

For this to have been a legitimate outline of a believed-possible plan, everyone involved in its authorship would have to be high on their leftover Silk Road stashes.

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I can't believe anyone is still taking the document seriously.

Gox may well be in trouble, but the document is an obvious fake.

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They could buy bitcoins on gox at gox prices, then unlike anyone else, could arbitrage by transferring those coins out and selling on other exchanges.

Of course there are coins to sell on gox, up until they halted trading, all trading is just shuffling their internal ledger, they didn't need the actual hard currencies underneath. (Which is why they should have been siloed, both the 780k reported missing bitcoins but ALSO the less highlighted 30m deficit on USD. (which is in part critical to show it wasn't just tx mallebility or btc problems, it was general bad accounting))

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If the presentation is to be believed, there are only 2000 actual coins at Gox, and Gox already controls them. Gox already can transfer them out and sell at a higher price. (The low round number balance suggests they've already been doing that.)

Meanwhile, there are 624K+ phantom coins listed as being in customers' accounts. So you can't (honestly) attract new "long term, high leverage" investor/trader fiat cash with the idea "there are cheap real coins here for you to buy then transfer out at a profit!" No one gets any new real coins by shuffling phantom coins around, and Gox needs all the real coins for themselves. If any real coins go to others at low prices then Gox becomes relatively more insolvent, not less.

And for as long as the arbitrage opportunity exists – phantom Goxcoins are selling for way less than real coins – who would be foolish enough to transfer new real coins in?

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> THERE ARE NO COINS TO SELL AT THE CHEAP MT GOX PRICE

If they buy goxcoins off the exchange for cheap, they no longer have to repay the people who sold them with real coins, thereby reducing their debt

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Indeed pages 3-4 suggest that's part of the purported strategy, retiring the BTC debt at the low price (during "Part 1").

But I initially read p. 7 as proposing something that would work to attract needed money (including traders) over time, since it's labelled "Support from Bitcoin big players and core community - long term, high leverage". That would imply they're getting something of value in return, like equity or redeemable coins.

But of course the new money, as investors or traders, can't get real coins cheap, because cheap coins don't exist.

Perhaps I've misread – and p. 7 is only another restatement of the short-term gambit, to extinguish Goxcoins via buybacks while at panic discount prices.

But then the "cash injections" are just a 100% donation to help unwind Gox debts, and the crazy part becomes: who'd want to throw fresh money into that wood-chipper?

I suppose it might make internal sense if the audience was deeply committed to the idea of Gox's resurrection – existing investors, or people entangled facing personal liabilities. Prior recipients of in-retrospect fishy distributions, maybe?

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How did you manage to remove the black blur ?

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If images are put into a PDF as embedded media, then they will be represented whole as PDF objects in the PDF file, even if they are obscured when the PDF is displayed. Acrobat, among other utilities, allows these objects to be extracted.

See, e.g., http://multivalent.sourceforge.net/Tools/pdf/Extract.html

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Is it at all possible that Mt. Gox users will have any recourse? I have a bit of money in there, not enough to care about, but it's caused me to follow this a bit more closely than I might otherwise. Reminds me in a small way of the Full Tilt poker fallout (at least those people got some small compensation from the class-action. I assume that's not an option given Japanese law being notoriously difficult to sue under - from what I've been told).

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If this is not a hoax, then I am going to question this Bitcoin Foundation's crebility. I remember a while ago on HN people asked "do you trust BCF" and a lot of people said yes.

http://www.coindesk.com/mt-gox-ceo-mark-karpeles-resigns-bit...

While I don't know if Charlie Shre is really guilty of money laundering, I have to question BCF's members' credibility.

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This is seriously going to call into question a lot of people's credibility. They knew that MtGox was continuing to trade and accept deposits whilst insolvent, and did nothing - indeed, it's possible some of them took advantage of the information asymmetry to pull their money out of MtGox at other people's expense, using various services that traded MtGox "Bitcoins" for real Bitcoins.

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how did you managed to remove the blur in the photo ?

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I'm not convinced this is real, and I happen to think that MtGox is going to go bankrupt. But this doesn't smell right to me.

If it's a hoax, then it's well done. I would guess it's something done by an investment banker who knows how to write documents up like this. But the write up is far too melodramatic for me to believe this was written by someone actually involved in the situation.

"At the risk of appearing hyperbolic, this could be the end of Bitcoin, at least for most of the public." "This isn’t about saving MtGox anymore."

Why is there only a single line on preventing a run on MtGox? That to me would be the most pressing issue once MtGox opened up the floodgates.

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He has to be hyperbolic, he is asking for a huge favor. He is asking that bitcoin owners essentially donate coins to mt gox in order for them to clear their losses. So in essence he is asking for tens of millions of dollars (at least, maybe hundreds) of free money. And not for charity, but for a profit based enterprise.

This is a rather bold request. So to back it up he says the entire fate of bit-coin depends on this.

There is only a single line about preventing a run on mtgox, because (a) trading will only start when mtgox is (mostly?) re-capitalized and has most people's bitcoins. And the prevention of a run on mtgox is pretty straightforward and non-controversial ... just limit the amount of withdrawals.

I am pretty sure this document is the real thing. But one thing I cannot yet decide is whether he stole all or some of the coins or really lost them. The idea that he lost over 700K of coins over the years without noticing is very hard to believe. On the other hand if he did steal the coins, and now is asking for the community to donate them back to him, then he has an immeasurable amount of chutzpah.

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That really does illuminate an angle of the U.S. bank bailouts before...

..that "too big to fail" really is not about jobs or anything like that, but about maintaining faith in the currency.

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I'm growing increasingly convinced that this is in fact true, and that the global financial system dodged a major asteroid in 2007. Possibly not a planet-killer, but one that would have set things back a long ways.

The problem remains that the bailout didn't just manage to shore up faith in the currency and banking system, but grossly enriched many of the same bankers who'd, if not caused the crisis, played a major role in precipitating and enlarging it.

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You seem to know a lot about this. Why didn't the US government, in all the bailouts, completely wipe out existing shareholders in order to not provide an incentive to do this again?

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This was exactly my reaction to reading this document.

It mirrors "too big to fail" startlingly well.

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and stopping riots

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Name one historical instance of bank runs leading to riots.

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Customers turn violent as Zimbabwe bank runs out of cash

http://www.independent.co.uk/news/world/africa/customers-tur...

Riots Hit Cyprus Bank After Accounts Frozen

http://www.endalldisease.com/riots-hit-cyprus-bank-after-acc...

Panic of 1837

Moreover, the panic unleashed a wave of riots and other forms of domestic unrest. The ultimate result was an increase in the state's police powers, including more professional police forces.[17][18]

http://en.wikipedia.org/wiki/Panic_of_1837

Baltimore bank riot

The Baltimore bank riot of 1835 was a violent reaction to the failure of the Bank of Maryland in 1834. The riot, which lasted from 6-9 August, was aimed at the homes and property of a number of former directors of the bank, who had been accused of financial misconduct and fraud

http://en.wikipedia.org/wiki/Baltimore_bank_riot

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The Cyprus riots were not due to a bank run; they were due to the government's decisions to prevent citizens from withdrawing their money. From the article you linked: "Riots are now being reported in Cyprus as citizens are furious at the Troika’s decision to rob the citizens to pay for the bad debts of banks."

I'll give you the others, however. The fact that two are from over a century and a half ago however seems to support my implication that bank runs don't necessarily lead to riots (and more specifically, that not bailing out banks won't necessarily lead to riots).

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Argentina in 2001 following the implementation of the "corralito" fiscal policy. But this seems like a very pedantic quibble you have here.

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That wasn't the bank run causing riots. That was the government policy which froze deposits, to avert a bank run, that caused riots.

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I stand corrected, you weren't being pedantic at all. I guess all those people lined up outside the bank, ready to riot, were waiting for the government to give them their money back.

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To quote the Wikipedia[1] article on the riots: "The uprising was a predominantly middle-class uprising against the government of President Fernando de la Rúa, who had failed to contain the economic crisis that was going through its third year of recession".

"The unrest started when Economy Minister Domingo Cavallo introduced restrictions to the withdrawal of cash from bank deposits, intending to stop the draining of deposits that had been taking place throughout 2001 and had reached the point where 25% of all the money in the banks had been withdrawn." People had were previously gradually withdrawing money over time.; no 'bank run' had occurred. The Corralito occurred, which among other political factors lead sections of the populace to riot. Read the article.

1. http://en.wikipedia.org/wiki/December_2001_riots_%28Argentin...

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Wasn't it the case in Argentina ?

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The riot was because the government froze deposits so people weren't allowed to withdraw money from the banks. My original (implied) point was that bank runs themselves don't necessarily cause the chaos they're made out to, so if anything this supports my case: if the government had allowed the bank to collapse, there may not have been riots.

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I don't see how whether they cannot withdraw because the government blocked withdrawals or because the bank has no money to give away matters. The riots are caused by inability to withdraw money in any case.

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No, they weren't. To quote the Wikipedia[1] article on the riots: "The uprising was a predominantly middle-class uprising against the government of President Fernando de la Rúa, who had failed to contain the economic crisis that was going through its third year of recession".

1. http://en.wikipedia.org/wiki/December_2001_riots_%28Argentin...

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It's melodramatic because it sounds like it was authored by, not MtGox, but an in-the-know bitcoin stakeholder who needs to convince other probably reluctant big stakeholders to help bail out MtGox.

I'm reminded of the Federal Reserve calling in every major Wall Street bank CEO and demanding that they chip in to help rescue the imploding hedge fund Long Term Capital Management, lest it take down the entire market.

http://en.wikipedia.org/wiki/Long-Term_Capital_Management

First time I'm ever seriously considering just cashing out all my coins...

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If I had any BTC, I'd be cashing out right the hell now. This doesn't bode well for the short term future of bitcoin. Long term, it might overcome it, but I wouldn't take that bet right now.

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Check the plummeting price, down to $488 and sinking. Long term it will of course overcome, MtGox was no longer the big market mover it used to be. Their constant incompetence no longer 'goxed' the price like it once did on a regular basis when they were the only major option if it did BTC would be worth pennies again like back in 2011.

Longterm things like colored coins are looking good for Bitcoin, plus exchanges not run by complete assclowns

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Why is there only a single line on preventing a run on MtGox?

Because preventing one at this point is impossible.

If they have truly lost almost everything (2000 BTC remaining), they have nothing, and those USD funds are probably frozen or to be frozen in various investigations. On the contrary, I find this document incredible because it actually envisages keeping mtgox open under new management. That's not going to be possible. Because of massive trust issues with anyone willing to go near this company, at best it's going to close down in an orderly fashion. Putting more money into it now is a lost cause, and without an audit by outside accountants, why should anyone trust them, no matter who the CEO is?

If they actually have lots of USD (I am doubtful), the best outcome for them is a precipitous crash in the bitcoin price down to almost zero, at which point they can pay out all their customers in bitcoin easily by purchasing new bitcoin and walk away with millions of USD. They seem to have done their best to engineer this by being completely opaque about their situation, but I suspect that's just incompetence and panic.

If they don't have accessible funds in USD, and have lost their BTC (as seems likely), no-one will get anything and the company will be wound up. Payouts have been glacial or nonexistent for months, so something has been badly wrong for quite some time.

The best bet for customers now is to apply to financial authorities immediately to have the company shut down and investigated.

Wiping their tweets and leaving it to now to shut down the website then showing a blank page shows you what level they are operating on - I suspect they have no appreciable assets available and are running on fumes, if not they would be acting in a far more rational manner and reassuring customers.

They will not survive this panic and this will end badly when the financial authorities step in.

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Definitely real. Joint statement just released on Coinbase.

http://blog.coinbase.com/post/77766809700/joint-statement-re...

Edit: and now the MtGox website is totally down.

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Weird, Coinbase just updated the post to remove “insolvency”, implying they don’t actually know if Gox is insolvent, or at least they don't want to be the ones to announce it: http://blog.coinbase.com/post/77766809700/joint-statement-re...

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I may have just overlooked it since I am reading on a small screen, but I don't see anything in there that said anything about the legitimacy of the leaked document. This could just be a general statement on the Gox situation.

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The statement doesn't imply anything about a insolvency

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The original title specifically said "Insolvency of MtGox"

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I've been watching the discussion here for the past few hours.

Mt Gox failing doesn't surprise me. The number of people stepping up and saying this is a hoax or fake does surprise me.

Over 2 months ago I responded to a poster on another bitcoin story who said they had waited over 5 months for their withdrawals. That means Mt Gox has not been solvent since at least last summer.

How can there be a run on a bank you can't get your money from? While the recent freezes of USD and BTC withdrawals were only recently announced it appears that you couldn't really get your money out before either.

I'm going to take a guess. An investor received this document, was appalled and published it.

If I was an investor in Mt Gox and received a document like this, which is clearly an admission of very illegal activity, I would publish it publicly and forward it to the FBI. I don't think there will be a gox.com, but I do think someone will end up on an Interpol list in a few days. Mt Gox wasn't run by people who should be celebrated, it was run by criminals who knowingly took monetary deposits for their insolvent for-profit business.

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I received a SEPA withdrawal from them last week, it was 20 days over due, but clearly authorized during the whole fiasco.

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You are incorrect. I got some money in January 2004 from MtGox. The transfer took 22 days. After that it has been much slower... :)

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20 days, 22 days, any entity thats solvent should be able to issue a withdrawal very quickly. It sounds like everyone was delayed, some far more than others for whichever reasons.

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2004?

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Quit living in the past! ;)

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Not only does it put a bigger focus on bitcoin as whole than MtGox, it is extremely negative about the company. I don't know what the intended audience for this is but it wouldn't do a good job of selling the company as a good investment or as good rallying cry for the troops. It reads like it was written by someone who believes in BTC but was burned by MtGox.

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Probably targeted toward Gox's investors who are going to be the ones that have to deal with this mess.

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It reads like someone's idea of what "should" be done, sort of an 'open letter' type approach. Time will tell.

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It also uses "robbery" in a really unbusiness-like way. Still, there's only a few things here and there that are kind of out-of-line, and might be of the sort I'd expect for a intended-to-be-internal document.

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Maybe, maybe not.

But Mt. Gox isn't a business. It's an unregulated exchange, so there's really no point in taking for granted that they would meet some standard of professionalism which by definition they don't have to.

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It most certainly is a business. They have employees, charge fees, and make a profit (or are supposed to). Exchanges are businesses, and MtGox is most certainly both an exchange and a business.

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Fair enough I guess, but I could have an office with a secretary at the front desk and charge people money to extract their teeth, yet that wouldn't actually make me a dentist.

I meant Mt.Gox isn't a business in the sense that businesses, typically, have regulatory frameworks they have to follow, and standards to meet. Particularly when they deal with currency.

Maybe I should have said there's no reason to expect them to act like professionals.

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I could have an office with a secretary at the front desk and charge people money to extract their teeth, yet that wouldn't actually make me a dentist.

Sure you would, just not a licensed one.

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They're a business. Just not a good one.

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It's not even particularly well done. Doesn't pass even a cursory inspection. It's fake.

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Care to shed any light on your reasoning?

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[deleted]

Doh, those are just events that already happened. Not rocket science here.

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I've found a potential inconsistency.

The document states their USD assets are $22.5M liquid and $10.5M seized/locked ($33M total) and USD liabilities of $55M.

How is this $22M deficit possible when the balance sheet on page 8 (look for the non-redacted version in this thread) shows a positive income for both the 2012 and 2013 fiscal years?

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They gain transaction fees on both sides of the trade, half in USD/etc and half in Bitcoin. It is possible that they valued their Bitcoin at e.g. market for the purpose of preparing the accounting reports, but did not actually sell it on their own exchange or otherwise. It was, therefore, part of the 120,000 they report as owing themselves, which (if you believe the document) was looted along with the bulk of customers' coins.

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It's a clever way to get some $400-$500 BTC

But that took some time to manufacturer if fake.

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It's been 4 hrs and not a peep from MtGox, so I might be wrong about this being a hoax...

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whois gox.com

    Domain Name: GOX.COM
    Registry Domain ID: 816800_DOMAIN_COM-VRSN
    Registrar WHOIS Server: whois.godaddy.com
    Registrar URL: http://www.godaddy.com
    Update Date: 2014-02-24 17:29:44
    Creation Date: 1997-10-09 23:00:00
    Registrar Registration Expiration Date: 2017-10-08 23:00:00
    Registrar: GoDaddy.com, LLC
    Registrar IANA ID: 146
    Registrar Abuse Contact Email: abuse@godaddy.com
    Registrar Abuse Contact Phone: +1.480-624-2505
    Domain Status: clientTransferProhibited
    Domain Status: clientUpdateProhibited
    Domain Status: clientRenewProhibited
    Domain Status: clientDeleteProhibited
    Registry Registrant ID:
    Registrant Name: Mark Karpeles
    Registrant Organization: Tibanne Co. Ltd.

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The update date on that and this document recommending an insane and utterly ineffectual rebrand caused me to revise my opinion of its accuracy from "Oh please, nobody, not even Gox, is that stupid" to "I think today will be a very interesting news day."

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Hmmm I still think it is a hoax, and a way for someone intelligent to earn a lot of money by manipulating bitcoin prices... The release in April 1st? Domain registered hours ago? Algo mtgox.com is registered in 1api. I don't see why they would switch registrars only for this, and there is a post in Mark Karpeles' blog accusing GoDaddy of shitty security practices: http://blog.magicaltux.net/tag/godaddy/

Also, if I were on that situation and soundly advised I wouldn't touch a US based registrar for my new domain even with a 10 foot Bitpole.

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gox.com was registered in 1997; it's just the record that was updated today.

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Of course, its a three letter domain name, it has been transfered. Someone transfered it today, I'm saying that person is not Mark Karpeles because he is using GoDaddy.

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Maybe the domain was already with GoDaddy, and an inter-client push was just faster? I've taken domains at registrars I'd rather not use to ease things for the other party.

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All the Whois details for gox.com point to Mark, including contact information and email. So if someone went through the trouble of buying a 3 letter domain to sway the market somehow, and made it look like it was now owned by Mark, they have effectively given the domain to mark as he could simply call up godaddy and use the details of the whois (his email, phone) to obtain full control.

So yes, Gox.com probably his now

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Anyone can register a domain name and list whatever contact information they want, right? The money made through manipulating the market would certainly outweigh the cost of a 3 letter domain name.

However, MtGox also suspended trading at the same time the document was released, which adds to the likelihood the it is real.

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Pinging the URL points to the same IP address as mtgox.com 46.51.247.57.

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Yes, but that is not informative. Without speculating on the current topic, the person who controls the domain sets both the registrant and the nameservers.

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This does not prove anything. Anybody can point a domain to any IP address.

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How hard would it be to fake that registration though?

Create burner email addresses, prepaid cards, etc and setup the domain. Sounds as plausible as all of the other MtGox conspiracies.

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On a three letter domain name, that's at least six figures hard.

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archive.org seems to indicate nothing of any value has used the domain in the last ~18 years

Did find this though, which was nostalgic https://web.archive.org/web/19961223071948/http://www.gox.co...

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> You have reached this page because you are using an older browser or are accessing this site via a browser that does NOT support virtual hosts (AOL's browser does NOT). You should upgrade your web browser to one of the following

> Netscape Navigator (v.2 or later), Microsoft Internet Explorer (v.2 or later) or Spry Mosaic (v.2 or later).

Amazing

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As if hacking GoDaddy domains is particularly difficult.

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MegaUpload became Mega, so why can't MtGox become Gox? Their slogan could be "you've been Goxed!"

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A lookup on domaintools.com shows some older information:

  Domain Name: GOX.COM
  Registry Domain ID: 816800_DOMAIN_COM-VRSN
  Registrar WHOIS Server: whois.godaddy.com
  Registrar URL: http://www.godaddy.com
  Update Date: 2014-01-21 18:29:05
  Creation Date: 1997-10-09 23:00:00
  Registrant Name: Andy Booth
  Registrant Organization: Booth.com
Booth.com is a domain reseller, which definitely suggests that somebody purchased the domain very recently.

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At this point 744,408 BTC are missing due to malleability-related theft which went unnoticed for several years.

Placing this sentence in bold text seems like an attempt to create panic. It seems unlikely that Mt. Gox would want to do that.

The reality is that MtGox can go bankrupt at any moment, and certainly deserves to as a company.

I find it extraordinarily difficult to believe that Mt. Gox would make a statement of this nature. "MtGox can go bankrupt at any moment" has a very amateurish ring to it, in stark contrast to recent communications from Mt. Gox. [1] Publicly stating that they deserve to go bankrupt seems highly inconsistent with planning for a relaunch.

Also, the document alternates between first person ("we will use SNS platforms...") and third person ("Publicly, MtGox declared that"), which is suspicious given that the statements released by Mt. Gox recently do not do that. [1]

It's possible that this is real. Personally, I doubt it.

[1] https://www.mtgox.com/img/pdf/20140220-Announcement.pdf

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Nah, I'd believe it. From reading it, I think the purpose of the document was to get other Bitcoin players to help bail out MtGox. Possibly something written by a credible outsider at MtGox's request. The normal answer to that would be, "fuck you", so this document a) has to make it clear that MtGox is doomed without a bailout, and b) the other players will be hurt more if they don't chip in than if they do.

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They have given their stakeholders and customers a clear signal which amounts to:

"Work with us in everyone's interest and we may slowly be able to return some value to you, work on your own interests and we all will lose everything.".

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My bet is on hoax and here is why:

1. A business like mtgox would expect to be moving coins into cold storage. The moment they need to move coins from cold storage into the hot wallet they would take notice and check their accounting. Theft from transaction malleability would show up in any simple summing of the balances and liabilities. They would notice the theft and stop pulling money from cold storage long before cold storage was empty.

2. The tone is too harsh on mtgox to be a report from a client of mtgox. Who produced it? If you hire a consultancy you can be sure they will brand any document produced.

3. Where did the cash liabilities imbalance come from? The "leaked" financial report did not show them spending the fiat reserve so where did the missing 20M go? How could the fiat liability be unclear? Shouldn't fiat liability be the one thing their accountant has a clear picture of? How do you "average across currencies", you cannot "average" exchange rates, the word makes no sense.

The more I look at this the more it feels like a post on bitcointalk.

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Mt. Gox itself feels like a post on BitCoinTalk

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3. is the most important there. The other questions could be speculatively answered. But there's no way to explain a 20M imbalance without some sort of criminal negligence, which would make any sort of rebrand / relaunch absolutely impossible.

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"Where did the cash liabilities imbalance come from?"

Bank accounts seized by DHS?

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Nope, the document accounts for that. It claims there is a massive additional amount of USD missing besides what was seized—with no explanation of how the money went missing.

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Sold all our coins @$500. Not for this reason only, it's the straw on the camels back. It doesn't smell like BS to me (although it could be of course). I highly doubt the author is intentionally misleading us, be he could be being mislead. He's ex VC apparently, seems to be plausible that this document was MtGox's solution to their problem proposed to potential VC's, and one of his VC friends passed it on to him.

Whether or not the document is real or not is pretty irrelevant to me at this stage. Only bad news can now come from Gox.

- Moved to a virtual office

- No withdrawls

- AstroPay rumoured to be non functional

- Communication failure of the highest order

- etc etc

This is a company going bankrupt.

If we had our coins in MtGox and they go bust, I'm going to be pretty distraught by the experience and it would sting enough for me to pay it no more attention going into the future. If Gox does go bankrupt, Bitcoin could lose a large % of their 'userbase', and some passionate and technical ones at that. Chance of MtGox going bust is probable in my opinion. I can't really any scenario where good news comes from Gox.

Happy to buy back in again, but probably wont consider it until the dust has settled, and there's a lot more dust to be kicked up in my opinion.

Been watching Bitcoin religiously for a while now and it feels a little relieving to not have any more serious skin in, for a while at least. Happy to look like an idiot tomorrow morning/next week whenever.

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> Happy to buy back in again, but probably wont consider it until the dust has settled, and there's a lot more dust to be kicked up in my opinion.

I rode this ride all the way down from $800 where I was investing and never sold.

Still won't, because I can't imagine the economy being that stupid. All the money that was in Gox that was going to get out already did. The rest is already deflated from the death of confidence in Gox. All the rest of the money is going into a black hole of whatever the US fed got and whatever MtGox dies with.

Unless people start panic selling their coins on the other exchanges (which I don't even get why you would - Gox is dead, the greatest blemish of incompetence in the trading scene is no more, that is a good thing), I don't see how this would impact the general btc price any more. If anything, I'd hope it would rally, but that malleable transactions nonsense probably is going to keep people scared for a while.

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Let this be a warning to everybody with bitcoin in wallets they do no absolutely control, for example, Coinbase - you can and almost certainly will lose them at a moment's notice, sooner or later.

I feel really sorry for those with funds tied up with MtGox. It was only recently where I used MtGox to store most of my bitcoin and I am lucky to have decided to move them all to paper wallets.

This demonstrates one of the biggest issues holding back widespread adoption of bitcoin, the ability of the layperson to securely hold large amounts of bitcoin.

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> Let this be a warning to everybody with bitcoin in wallets they do no absolutely control

Is that how this happened?

Given that bitcoins are supposed to be owned by addresses that are protected by private key, I wondered why people couldn't "withdrawal" their bitcoins. If Mt. Gox was controlling the private keys (as a hosted wallet service) that makes more sense.

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Yep. At the exchanges, you're basically buying Bitcoin credits when you send them Bitcoin. You can trade these credits for dollar credits. On a functioning exchange, you can withdraw these credits one-to-one for Bitcoin or dollars to a wallet or bank account you control.

In the future there will potentially be decentralized exchanges where a Bitcoin transaction can be a component of an exchange transaction and there is no third-party involved. But not today.

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I was under the impression that the whole point of Bitcoin was that it was a decentralised currency, and your coins lived in your wallet. What is the value of actually entrusting your coins to 3rd party where they're outside of your control? Just the ability to exchange them for USD? Why would you keep coins with them on a long-term basis?

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Presumably under the assumption that an exchange such as Mt Gox would be able to keep the coins safer than they themselves could, which now doesn't seem like a particularly sound assumption to make.

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I can confirm, this was my line of thought. After the first hack, and the seemingly professionalisation of MtGox, especially compared to the other exchanges.

In a proper BTC exchange, most of the Bitcoin are in cold storage, which means they can't be stolen even if the exchange was hacked. The hot wallet would represent the variability in the exchanges BTC holdings and would be very small, so that in case of theft it could be either insured or covered.

That to me sounds like it's safer than any scheme I can come up with, without losing the mobility of the BTC.

Of course, if this document is true, it means MtGox did absolutely no accountancy on their cold wallets for the past 3 years.. that's just plain crazy :(

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I wonder if it would be possible to write an AI to manage a Bitcoin exchange; cut out the human element and the potential for mistakes/scamming completely? Before the exchange is launched, publish the AI's source and have it undergo an extensive public audit.

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That's generally how the exchange services work.. you send money from your wallet to one under their control, which credits an "account" you use to make trades.

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Honestly that's a bit creepy. I've started to play around with Dogecoin and decided to see how I could buy $50 or so worth and was horrified at the answers.

* Make a physical deposit against an account number we give you at a bank branch

* Buy Linden Dollars, swap them for Bitcoin, swap them for Dogecoin

* Give people gift card codes

* Pay random people via PayPal or Google Wallet

The last of those was the least sketchy looking but by and large it creeped me the hell out. The options looked like 50% scamming and 50% money laundering.

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Well nobody is going to sign up for you using anything that can chargeback, because they can't get their money back if they give it to you.

And a lot of the intermediary payment services like Dwolla stopped working with btc. So if you want doge, either mine it, get sent it from random strangers, or trade it for btc (which is more readily available through services like coinbase).

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How is this any different than sending cash to Paypal which then creates an account you use to buy things on eBay with?

And before you say "more regulation" - Paypal is not a bank and operates as a money transfer service. They can and have frozen people's accounts out before.

The reason the methods are so strange is that most other method allow the buyer to do a chargeback and scam the seller.

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When you have coins on an online exchange, it's not as if those coins literally sit there untouched. Your balance is just a number in a database.

Similarly, if you deposit $100 USD(5 physical 20 dollar bills) in a bank those physical bills don't just sit there waiting for you. They can be given to anyone during the course of the business. You just get "100" added to some database row somewhere. When you want that $100 back, the Bank has to reach into its funds and pay you.

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Anyone know who Ryan Selkis is? If you download the original PDF, right click the blacked out parts, and select properties his name is listed as the "Author" under the General tab; last modified 2/24/2014 8:46:51 PM.

According to his linkedin he is the Founder of Inscrypto, "We are like Bitcoin’s privately funded, decentralized version of the FDIC."

http://go.inscrypto.com/

http://www.linkedin.com/in/ryanselkis

Either they lost a lot on this or they just got the best advertisement ever for why one might need their services.

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Ryan is the guy who originally shared the slide deck. He blogs/tweets under the pseudonym @twobitidiot:

http://www.slideshare.net/selkisr/bitcoin-market-opportunity...

(see slide 2)

original tweet sharing the slide deck:

https://twitter.com/twobitidiot/status/438131088607965184

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Ah, that makes sense, looks like this Wired article agrees...

http://www.wired.com/wiredenterprise/2014/02/bitcoins-mt-gox...

Edit: the NYT article attributes the leaked document to someone else though, http://www.nytimes.com/2014/02/25/business/apparent-theft-at...

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Wait, what is that line with 5.5 million USD held by DHS ?

Department of Homeland Security?

ps. also, they have 80 THOUSAND seized btc from banned accounts?

that is a whopping bit of profit if that space is a comma and not a decimal

anyone notice this document is a bit sloppy with commas vs spaces?

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Yes. The feds seized funds from MtGox's US subsidiary's bank accounts.

http://techcrunch.com/2013/08/23/feds-seize-another-2-1-mill...

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Yes.

http://techcrunch.com/2013/08/23/feds-seize-another-2-1-mill...

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> cash injections to buy coins at the cheap MtGox price are some options among many

> cash for buying coins at MtGox price - Target: 50% covered

Called it: https://news.ycombinator.com/item?id=7289629

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Drop the "Mt.". Just "Gox". It's cleaner.

On a serious note: I still doubt the legitimacy of this document, given how absurd it is to lose that much BTC without noticing.

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Same here. The statement that got me was "The reality is that MtGox can go bankrupt at any moment, and certainly deserves to as a company." That is no way to start out a slide show that says there is still hope for recovery from this mess.

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What would you have expected them to have done if they had noticed but the people who noticed were netting millions of dollars a year? Sacrifice all that money or ride the gravy train to the end of the line?

Suppose they figured it out three or four months ago that all their bitcoins were gone, what would have made things better? Suppose they figured they'd commit a small fraud two years ago before bitcoin took off, when were they supposed to come clean?

People are building supercomputers to mine bitcoins. The whole idea of bitcoin is as rational as Easter Island totems but organized religion is probably a better analogy.

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Then to shame with all of the other actors in the industry. It is not unreasonable to expect your financial counterparties to subject themselves to audit. There are a lot of heavy bats in the Bitcoin community. If MtGox wouldn't consent to the same level of auditing any normal publicly traded US company is subject to (to say nothing of financial institution) then say so publicly and refuse to do business.

The amount of lost BTC is in the hundreds of millions of dollars. I personally cannot believe it possible that this is not an insider job. I admit, I've traded on MtGox (speculation in 2011) but things were different back then and I never had my own wallet. My assumption is that it would be trivial to run DAILY reporting that verifies the amount of BTC you think you have on deposit with what you actually do. This is banking 101 and the ONLY way to ensure there is not a bug in your transaction handling.

You are right brudgers that you cannot necessarily expect somebody to police themselves. But Coinbase. Winklevosses. Etc. I'm looking at you. These guys are CLEARLY crooks and have been all along and you let yourselves get snowed.

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Given the volatility of btc and the 'Gox' situation, it certainly wouldn't be too out of the question that someone is pushing false info to drive the Gox BTC => BTC trade prices down, but unfortunately I feel as if this might be legit

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Mt Gox BTC is trading at a 75% discount already, this seems superfluous. I'm betting on real.

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> On a serious note: I still doubt the legitimacy of this document, given how absurd it is to lose that much BTC without noticing.

Far more absurd things have happened.

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It'd be easier to believe an insider embezzlement, or deep hack/physical-heist by outsiders, that took all cold-wallet funds in one go. A gradual drain would have given so many chances to notice, mitigate, or correct.

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> The cold storage has been wiped out due to a leak in the hot wallet.

This sounds like some kind of bullshit.

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I believe it. We know there have been times when withdrawals of BTC stopped and the stated resolution was that they had to top off the hot wallet from cold storage. Now you might think it would be pretty dan hard to be scammed for years and not notice so many missing coins but we also know they are incompetent so I'm gonna say this could be legit.

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Yeah, but how incompetent can you be to lose 700k of coins? I mean at some point you'd look and say, "hey, that's weird, we only have 400k left in our cold storage!"

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It's entirely possible that the "leak" is a cover story for someone at the company getting rich. Or that an insider knew the company had a security hole and exploited it while incognito.

The downside to helping out Gox is that the incompetent people don't pay. I'd suggest those with deposits would see a better return if they allowed Gox to go bankrupt, then filed a class-action lawsuit in an attempt to pierce the corporate veil and go after the company's officer's assets. It might still be pennies-on-the-dollar but it wouldn't be zero pennies.

-----


Page 8, nonredacted: "MtGox business is healthy and profitable", "Projection Draft": http://i.imgur.com/u9aP9Hg.png

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Is this a fake/placeholder balance sheet? Why would MtGox have a "Cost of Goods Sold"?

-----


There are software companies that account for hosting fees and payment processing fees as COGS; COGS are non-marketing expenses that scale with sales, which can be nonzero for Internet software companies.

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They give 4 million USD a year to accountants and lawyers?

That's a bit mind boggling.

-----


That is their projection for the future, and if you assume protracted litigation while they're restructuring is going to be the order of the day, that doesn't sound insane at all.

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Hindsight is 20/20, but:

whatever they were paying to accountants and lawyers already, it wasn't enough.

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I enjoy the proposed April 1st date of relaunch...

Should be noted that at the time of this document release, all trading on MtGox is shutdown.

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Yup, articles showing up online.

http://www.businessinsider.com/reports-mtgox-halts-all-tradi...

http://www.reddit.com/r/Bitcoin/comments/1yuopj/trading_disa...

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Download the PDF and set the highlight opacity to 20% if you want to read the balance sheet/projections on page 11.

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download the PDF - click on Comments. Delete all the comments and you can see all the numbers

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What is a "leak in the hot wallet"? Is that a euphemism for "we did not correctly move coins to cold storage"?

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I don't understand. Either they got robbed very slowly over a long time, which means they literally did not do even the most basic accounting. Or they got robbed all at once which means they had no cold storage for bitcoins. Neither seems likely. I knew there were some problems with MTGox lack of communication about problems over the past few years, but you can't be so dumb as to not hire a competent auditing team with millions of dollars at your disposal and hundreds of millions that you are in charge of protecting right?

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If it's a hoax, I wonder if it is trolling companies as well. These headlines just flashed across the terminal:

    *COINBASE RELEASES STATEMENT ON MT. GOX INSOLVENCY
    *COINBASE SAYS MT. GOX VIOLATED TRUST OF USERS
Edit: Ah, joint statement by:

    Fred Ehrsam — Co-founder of Coinbase
    Jesse Powell — CEO of Kraken
    Nejc Kodrič — CEO of Bitstamp.net
    Bobby Lee — CEO of BTC China
    Nicolas Cary — CEO of Blockchain.info
    Jeremy Allaire — CEO of Circle

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(Assuming this is real)

How do you lose HUNDREDS of millions of dollars worth of bitcoins over the course of years and not notice it?? There is no evidence that this "accidental loss" is not merely obfuscated theft.

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It's highly likely this is a hoax. I don't even understand who this is allegedly written by? Gox themselves?

Or is the 2nd slide written by someone else? Why would they hypothesize about the demise of Bitcoin, not to mention say "The reality is that MtGox can go bankrupt at any moment, and certainly deserves to as a company" about themselves?

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> It's highly likely this is a hoax. I don't even understand who this is allegedly written by? Gox themselves?

The only way I can see it making sense is if it is by someone inside Gox, probably (from the tone) without formal tasking, seeking to galvanize action from decision-makers in a mixture of denial and panic at the time it was written.

-----


Maybe somebody like the Bitcoin foundation doing some crisis management and taking over what's left of MtGox to save the market?

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It sounds like it's written from the vantage point of an incoming turnaround/bailout team, which explains the shifting perspectives. It's not quite existing management, but a wanna-be new team that shifts into speaking on behalf of the envisioned future incarnation.

Still, I agree there's a high probability it's a hoax.

Re-launch April 1?

No discussion whatsoever of criminal liabilities?

Tallying seized funds in others' hands (including CoinLab and USGov), pending legal cases, as assets?

Totally fanciful belief there'd be donations and new buyers/investors ("cash injections to buy coins [that by the way actually don't exist] at the cheap MtGox price") through a 1-month shutdown-restart, where the only asset is Gox's brand?

It's hallucinatory, to whatever extent it's not an intentional parody of other 'too big to fail' bailouts.

-----


And this, children, is why markets are regulated.

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> The plan was instead of just having MtGox make a statement saying 'we are insolvent, no more money' they would team up with the other exchanges and come up with a plan where they could wrap that news around some 'good' news.

Or, as I think is the more common term, "commit fraud".

-----


Please explain this like I'm 5. Gox has for some time required verification for withdraws. So it knows (government ID, passport scans) who withdrew funds twice. Why can't they just ask for their money back like any other business?

-----


744,408 BTC is 367,704,753 USD... (at $493 per BTC).

This is bullshit. No way it went unnoticed for years. They're trying to pull what SR2.0 pulled, stole the money and are now trying to run.

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Also, I was wondering why they had allowed trading, even after finding the issues with their systems - but that document made everything clear.

If they would shut down immediately, they would own:

  744,408 BTC is 367,704,753 USD... (at $493 per BTC).
But based on linked document:

  744,408 BTC (MtGox av price 160 USD= 119,105,280 USD)
Brilliant move.

-----


Whoever censored the tables on page 7 appears to have forgotten about deleting the text behind the black bars.

-----


http://cl.ly/image/2L043C464030

-----


You can un-redact it yourself if you stick an ID on one of the surrounding divs, and then do $("#mydiv img").remove();

http://i.imgur.com/jixb1FZ.png

-----


http://f.cl.ly/items/3a0C2e122c3q02473T1x/Image%202014-02-24...

-----


So uncensor it and post it for us here.

-----


There you go: http://imgur.com/MwPTktl

-----


Is any of it retrievable?

-----


Well, they certainly could have tried harder to sensor the income statement. It's 100% visible if you open that particular page in Illustrator.

-----


Would you mind posting the figure for those of us who don't have illustrator? I'm curious.

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https://news.ycombinator.com/item?id=7294888

-----


Page 8, nonredacted: "MtGox business is healthy and profitable", "Projection Draft": http://i.imgur.com/u9aP9Hg.png

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Thanks!

-----


I said several times that Mt.Gox needed an independent financial audit. Even after this announcement it still does.

-----


Where is the slide about a criminal investigation. If this is real, it has to happen, right?

-----


What laws have they broken?

-----


Gross negligence

-----


Clearly MT Gox is too big to fail.

-----


Ha, right. And they're asking for a bailout.

Wasn't Bitcoin supposed to be different?

-----


People will be people.

-----


In my opinion, Mt. Gox announcing insolvency would be a good thing for Bitcoin. Given that Mt. Gox froze trades and this document was released around the same time, this might actually be legitimate.

This is a good thing because right now Mt. Gox is giving Bitcoin a very bad name. Silk Road made Bitcoin seem shady. Mt. Gox makes Bitcoin seem like a joke, like you can lose it all because the exchanges are so immature compared to exchanges for USD or etc.

Better now than in a year when a much larger portion of the public has accepted Bitcoin. In the meantime, here comes sub-500 on Bitstamp. Buy the rumor, sell the news, folks.

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Simply putting black bars over text (p.8) in a PDF is not sufficient to redact it.

-----


Whoever created this PDF knew that.

-----


200 million dollars in net liabilities. Restructuring is not going to happen.

-----


Listed under "Assets": "New brand and services ready to be launched."

Just what the community needs most - new Gox-quality services, hidden behind brand obfuscation. Ready to go!

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I'm going with hoax. When the brown stuff is hitting the fan you lawyer up and stay quiet. You don't write a Powerpoint presentation that could later be used to sue your ass off.

Update: Tracking the Coinbase spot price it dipped below $500 for a short while just after the document went public. It's now back over $500. Smells even more that someone is trying to push the non Mt.Gox BTC price down to buy cheap to sell on the rebound.

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This is showing the weakness in that there is no central entity to control BTC.

In a "fiat currency" world regulators would step in and a) supply liquidity (either in BTC or fiat) and b) impose withdrawal limits while at the same time try to prevent a bank run by backing the weak actor.

(Not that I dislike BTCs lack of a central authority, but it certainly would come in handy here)

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If this document is real, the criminality of what's going on is mindblowing (and I don't just mean the theft from Mt Gox, I mean the theft from Gox customers by Gox...the "buy Gox BTC while it's cheap" and then manipulating the market to insure it stays cheap and gets cheaper over time, is straight up fraud).

If this is real, I don't want Mt Gox to survive. Just like I don't think many of the banks during the mortgage crisis should have survived. We'd be better off today had the market been allowed to destroy them (or, if not today...then in five or ten more years; in the long run, all we've ever gotten from bailouts and Hail Mary passes for the big banks has been more criminality on an even larger scale further down the road, and less justice for the people they hurt).

I don't know what the right answer is here, but bailing out a criminal enterprise isn't it.

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Fiat regulators would've prevented them from running such slipshod operation in the first place. Or at least required better accounting controls.

-----


It'll be interesting to see if Silk Road 2 will be able to recover from their loss by creating a truly (crypto) trustable escrow service that can be reused by exchange...

I don't understand how you can trust any exchange otherwise!

-----


According to that document, they only have enough assets to pay 0.1%-0.3% of customer deposits. That's a 100% loss to customers.

There's no way the other Bitcoin users can afford to pay 100M to bail out their customers.

-----


That this even could be conceivably real is the entire problem with Bitcoin.

-----


a question how does one audit an anonymous money transaction?

NO, really from a standpoint of say security, financial,etc?

The Fiat is only as trust worthy as its baddest actor. This works not only for physical but for bitcoin a well.

Another way to put it is if you have 100% transparency you have 0% bad information ..ie less price swings and less opportunities to make money on swings either up or down.

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For those interested: page 8 unredacted... http://imgur.com/aU5mCVP

-----


Clearly a hoax or an inside job, nobody loses that much money without noticing, this might go down in history as the Gox scheme.

-----


Nobody said they were completely unaware of it. They might have known about the theft and been hoping they could dig their way out of it.

-----


Wouldn't that make it a Ponzi scheme then?

-----


Precisely the analogy I was thinking.

Even at the very end, epic Ponzi scammer Marc Dreier was convinced he could dig himself out with more "investments".

-----


And this is how Bitcoin community discovers the virtues of industry-sponsored deposit insurance.

-----


Gox is better crafting crisis strategy draft than coding softwares. :-/

-----


Maybe it's a hoax. But the pieces seem to be falling according to the plan. http://money.cnn.com/2014/02/24/technology/security/mtgox-bi...

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If nothing else it would be clearly irresponsible of MTGox to remain silent

-----


How will the MtGox fiasco affect the bit coin economy in the long term.

-----


yeah the uncensored doc on page 7...http://cl.ly/image/2L043C464030. This just stinks of a hoax

-----


You've got to break a few eggs to make an omlette.

-----


What would the omlette be in this analogy?

-----


A stable market with trusted financial intermediaries etc.

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Currency of the future guys!!!!!!11

-----


Waaayyyyy too dramatic to be real; even for MtGox.

Not that I think MtGox is coming back. I'm only interested in how(there's no "if" anymore) they shutdown. Will they be able to make everyone whole again.

Now, if this is real and they really did lose over 700K of coins... they better just pack up and run to a far away galaxy.

-----


why Singapore?

-----


Because it's Bitcoin-friendly and a great place to run a company?

http://gyrovague.com/2013/10/30/half-the-donut-why-an-entrep...

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Maybe due to their official approach to bitcoin taxation: http://qz.com/165207/singapore-figured-out-how-to-tax-bitcoi...

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If MtGox were too big to fail, the taxpayer would cover their losses. Looks like someone wants a bailout. Nice work if you can get it--the question for me is, how do I get in on this? If the answer is that I cannot, then allow me some shadenfreude.

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