Bitcoin Exchange MtGox CEO Karpeles Faces Lawsuit Over Bankruptcy; Personal Finances Targeted In Class-Action Case

   on March 03 2014 8:20 PM
MtGox Feb 20
Bitcoin prices have fallen while MtGox faces technical issues. Courtesy bitcoincharts

In the latest chapter of the MtGox saga, a London law firm has filed a class-action lawsuit against MtGox CEO Mark Karpeles. The bitcoin exchange filed for bankruptcy Friday, stating that more than 850,000 bitcoins, 100,000 of which belonged to the exchange itself, had been lost due to a flaw in their systems. The lawsuit seeks damages from Karpeles himself, saying that they will go after him “wherever in the world he is.”

Selachii LLP claims to represent more than 200 claimants in 15 countries around the world, some of which lost vast sums of the virtual currency. One claimant states it had more than 4,000 coins tied up on the exchange, which halted the ability to withdraw funds on Feb. 7. Prior to the withdrawal suspension the average bitcoin price was around $850; the market opened Monday at $560 per bitcoin, but has since climbed to $670.

The Japan-based bitcoin exchange has remained very quiet about the loss and bankruptcy, stating only. “We have lost bitcoins due to weaknesses in the system.” Karpeles was referring to the transaction malleability flaw in the bitcoin protocol. However, many have questioned whether a loss of that size could be committed through a bitcoin malleability hack.

Selachii’s Richard Howlett says that the statements MtGox and Karpeles have made don’t make sense. “I don’t know if it’s true that they were hacked. No one knows if it’s true,” Howlett states. “But that’s something that will come out in court. I will be surprised if it’s as simple as they were just hacked.” According to Howlett, both bitcoin and the fiat funds that were associated with users’ accounts could not be lost in the same way.  

Howlett also questions the bitcoin exchange's actions leading up to the bankruptcy, claiming that MtGox’s actions could be seen as fraudulent and illegal. Karpeles spent the month of February stating that everything was in order and encouraged users to continue to trade on the site, saying only that a fix needed to be implemented on the site’s code before withdrawals could be reinstated. Additionally, the weekend before the exchange filed for bankruptcy, MtGox deleted its Twitter account, going completely silent. “They had to be honest. They should have stopped everything, because it appears that they were in serious financial difficulty,” Howlett said.

Whether the exchange was fraudulent or not is up to the court to decide. Many people in the bitcoin community are claiming that it should be easy to prove the hack as every transaction is logged on the blockchain, a public ledger that identifies every transaction as it processes. What will be less easy is to show how the company lost the fiat funding through a hack. 

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