Virtual currency exchange faces authentic lawsuit

February 28, 2014 08:59 AM
Mt. Gox sued

Bankrupt Mt. Gox, once the world’s biggest Bitcoin exchange, was sued by a customer in federal court in Chicago in a proposed class-action lawsuit representing all U.S. users who lost money.

The Mt. Gox exchange announced Feb. 24 it had lost 750,000 Bitcoins belonging to users and 100,000 more of its own. The exchange filed for bankruptcy today in Tokyo, saying in a statement that its debt exceeded its assets by 2.7 billion yen ($26.4 million).

“This catastrophic loss has not only revealed the instability of a burgeoning new industry, it has also uncovered a massive scheme to defraud millions of consumers into providing a private company with real, paper money in exchange for virtual currency,” Illinois resident Gregory Greene said in a complaint filed yesterday in federal court in Chicago.

A digital currency, Bitcoin was introduced in 2008 by one or more programmers under the name Satoshi Nakamoto and has since gained traction with merchants around the world. The virtual coin has no central issuing authority and uses a public ledger to verify transactions while preserving users’ anonymity.

Greene is pursuing class-action, or group, status on behalf of all people in the U.S. who paid Mt. Gox to buy, sell or trade in bitcoins as well as a those who had currency stored with the Japanese entity on Feb. 7.

Along with damages, Greene wants a constructive trust imposed over the business and an accounting.

Bitcoins Stolen?

The suit names as defendants Tokyo-based Tibanne KK and its units Mt. Gox KK and Mt. Gox Inc., a U.S.-incorporated company, and Mark Karpeles, chief executive officer of all three, according to the complaint.

Karpeles did not immediately reply to an e-mailed message for comment on the lawsuit. A foreign company in bankruptcy may ask a U.S. court to block litigation during its reorganization.

“There is a high possibility that the Bitcoins were stolen,” Mt. Gox said in a statement when it filed for bankruptcy. “It is considering filing a criminal complaint.”

U.S. and Japanese prosecutors have opened investigations into the shutdown and bankruptcy of Mt. Gox, and U.S. regulators are exploring options for increasing oversight of virtual currencies.

U.S. Probes

The U.S. probe is being aided by the Bitcoin Foundation, an advocacy group for the currency. Karpeles resigned from its board on Feb. 24.

The European Banking Authority said today that it would create a task force to review ways to regulate Bitcoin and its derivatives.

The Mt. Gox exchange went off line earlier this month.

“As a result of Mt. Gox ‘going dark’ and shutting down its entire operation, users’ fiat currency” -- that is, money issued by national governments -- “and bitcoins previously stored by Mt. Gox are now unavailable to them, and by all accounts, have been converted and captured by Mt. Gox,” Greene alleged.

The case is Greene v. Mt. Gox Inc., 14-cv-01437, U.S. District Court, Northern District of Illinois (Chicago).

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