Japanese bitcoin exchange files US bankruptcy case (Update)

March 10, 2014 by Michael Liedtke

The collapse of Japan's Mt. Gox bitcoin exchange is spilling into U.S. bankruptcy court as the company scrambles for legal cover after losing digital currency valued at $473 million.

Mt. Gox's bankruptcy filing in Dallas late Sunday supplements a similar petition made in Japan late last month following the exchange's abrupt closure. The U.S. case is being brought under Chapter 15 of the country's bankruptcy code, which provides a haven for foreign companies seeking to reorganize their finances.

Mt. Gox's downfall provided fresh ammunition for bitcoin skeptics who have questioned the security and staying power of a digital currency created six years ago as an alternative to government-controlled monetary systems that rely on banks to process most transactions.

Once the world's largest exchange specializing in bitcoins, Mt. Gox is now mired in a financial mess. The exchange froze its users' accounts last month and then shut down after acknowledging it couldn't account for 850,000 bitcoins. Mt. Gox CEO Robert Karpeles blamed most of the losses on computer hackers who took advantage of the exchange's flawed software.

The missing currency, valued at $473 million at the time of Mt. Gox's Feb. 28 bankruptcy filing in Japan, represents about 7 percent of all bitcoins in worldwide circulation, according to court documents.

Although it's based in Tokyo, Mt. Gox is opening a U.S. bankruptcy case in an attempt to delay a recent federal lawsuit filed in the state of Illinois on behalf of all U.S. residents burned by the exchange's demise.

The civil complaint brought against Mt. Gox by Illinois resident Gregory Greene alleges the exchange engaged in fraud and other misconduct. The suit is seeking to be certified as a class action that would represent all U.S. residents who had paid fees to Mt. Gox as part of a bitcoin trade or had their accounts frozen.

Steven Woodrow, a Denver attorney representing Greene, estimates hundreds of thousands of people could be represented in the case. In a Monday interview, Woodrow said he still intends to seek a federal court order that would freeze Mt. Gox's computers and other assets in the U.S. A hearing on Woodrow's request for the court order is scheduled for Tuesday in Chicago.

If the Illinois case proceeds, Mt. Gox attorneys contend that it will drain the company's finances and divert management's attention during a critical time.

Mt. Gox's bankruptcy papers list liabilities of about $64 million and assets of $38 million.

Mt. Gox also is hoping to use U.S. bankruptcy laws to ward off another lawsuit filed last year in a Seattle federal court by a former U.S. partner, CoinLab Action.

Under an agreement signed in November 2012, CoinLab was supposed to use Mt. Gox's technology to run a bitcoin exchange in the U.S. and Canada. The alliance unraveled within a few months, prompting CoinLab to sue Mt. Gox for alleged breach of contract. CoinLab is seeking $75 million in damages, according to court documents.

Explore further: Website of Bitcoin exchange Mt. Gox offline (Update)

Related Stories

Head of troubled bitcoin exchange still in Japan

February 27, 2014

(AP)—The head of troubled bitcoin exchange Mt. Gox says in a web post that he is still in Japan, and "working very hard" to find a solution to the Tokyo-based organization's problems.

Tokyo bitcoin exchange files for bankruptcy

February 28, 2014

(AP)—The Mt. Gox bitcoin exchange in Tokyo filed for bankruptcy protection Friday and its chief executive said 850,000 bitcoins, worth several hundred million dollars, are unaccounted for.

Recommended for you

Customizing 3-D printing

September 3, 2015

The technology behind 3-D printing is growing more and more common, but the ability to create designs for it is not. Any but the simplest designs require expertise with computer-aided design (CAD) applications, and even for ...

Team develops targeted drug delivery to lung

September 2, 2015

Researchers from Columbia Engineering and Columbia University Medical Center (CUMC) have developed a new method that can target delivery of very small volumes of drugs into the lung. Their approach, in which micro-liters ...

Magnetic fields provide a new way to communicate wirelessly

September 1, 2015

Electrical engineers at the University of California, San Diego demonstrated a new wireless communication technique that works by sending magnetic signals through the human body. The new technology could offer a lower power ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.