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Mt. Gox Bitcoin exchange faces liquidation

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There are some who have held out hope for a reorganization of the Bitcoin exchange, Mt. Gox, but yesterday brought an end to any chance of that plan, according to the Wall Street Journal. It has been a roller coaster ride since the Mt. Gox CEO Mark Karpeles first announced last December of ‘technical’ difficulties.

The shutdown of its office in Tokyo and a few comments on its website brought Karpeles and his attorneys to Tokyo bankruptcy court to file from its creditors on Feb. 28. It had planned to restructure and reorganize. Karpeles had left faint remarks of restructure plans and backers on one of his last website comments.

Yesterday it became apparent that liquidation would follow the court filing. Court appointed attorney Nobuaki Kobayashi stated last Wednesday that the court will investigate the collapse and subsequent loss of moneys but reorganization was too difficult for Mt. Gox.

There was a glimmer of hope when Mt. Gox had recovered 200,000 BTC in what is known as a ‘wallet’ or holding account online over a month ago. The main search for the 850,000 has been missing since the bankruptcy declaration in Feb. along with it $63.6 million in debts claimed in the court filed papers.

On Monday the Mt. Gox attorneys told a U.S. federal judge that Karpeles would not travel to the U.S. for a court appearance on Thursday to answer questions about the failure. Originally Mt. Gox had placed blame on hacking of software. Thinly veiled accusations on the Mt. Gox website had left Bitcoin investors and others wondering what really occurred.

At that time the specific issue of ‘transfer malleability’ was put forth on the Mt. Gox website as a possible problem issue. This transfer problem occurs when a transaction does not get listed on the public ledger and a second transaction is performed on the same account ledger. Duplicate transactions and an accounting balance are incorrect for the bitcoins redeemed.

After the filing in the Tokyo bankruptcy court Mt. Gox attorneys filed for Chapter 15 bankruptcy protection in Texas to protect itself from a suit in Illinois attempting to seize its U.S. bank accounts. Manhattan U.S. attorney Preet Bharara’s office had sent businesses which included Mt. Gox a subpoena after the firm went dark on its website.

Mt. Gox problems began last July when the Department of Homeland Security seized more than $5.1 million under the legal statute for money laundering. Due to the FBI investigation at that time into Silk Road activities a DHS report noted last Nov. that Mt. Gox was moving $60 million monthly into Internet-based black markets, of which Silk Road was included in the list. Silk Road was shut down last Oct. when FBI arrested its web owner and shut down the exchange. Assets seized from that exchange are held by the Dept. of Justice at this time as forfeiture. There is an on-going investigation in the Silk Road case.

Karpeles has not agreed to return to the U.S. under fear of being detained and also questioned in the Silk Road investigation according to his attorneys. It has been a question for months as to whether Karpeles was involved with the Silk Road illegal operations.

A note was posted last Wednesday on the Mt. Gox website that the company had ‘no prospects for the restart of the business.’ The bankruptcy administrator Kobayashi has stated that, ‘it will be unlikely that the company can restart the exchange.’

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