On April 16, Bitcoin exchange MtGox announced that the rehabilitation plan to restore the exchange to operational status has been rejected by a Tokyo court, leaving bankruptcy proceedings and liquidation of assets the likely outcome of the exchange's collapse.
A court-appointed lawyer, Nobuaki Kobayashi, will oversee the assets remaining at MtGox until bankruptcy proceedings officially commence and a bankruptcy trustee is named.
“The Tokyo District Court recognized that it would be difficult for the company to carry out the civil rehabilitation proceedings and dismissed the application for the commencement of the civil rehabilitation proceedings,” said Kobayashi.
On Feb. 24, MtGox went offline and all trading activity ceased. This development followed an announcement on Feb. 7 that the Tokyo-based exchange was halting withdrawals due to increased traffic and a flaw in its protocol which can allow for fraud. The company filed for bankruptcy protection shortly afterward, saying it may have lost some 850,000 bitcoins. It later said it had found 200,000 of those bitcoins in an “old-format” wallet that stored them offline.
MtGox was created in 2010, just one year after the launch of Bitcoin, and quickly became the largest and most visible exchange. At one point, MtGox handled almost 80 percent of all Bitcoin transactions. But over time, instances of server mismanagement and government thefts of its assets led to illiquidity of customer deposits.
MtGox also faces class-action lawsuits from American and Canadian users who claim fraud by the exchange and by Mark Karpeles, its chief executive. Karpeles' lawyers told a U.S. federal judge this week that he is not willing to travel to the United States to answer questions about the bitcoin exchange's U.S. bankruptcy case. Karpeles may also be in legal trouble in Japan, as the announcement today says, “It is expected that, if the bankruptcy proceedings commence, an investigation regarding the liability of the representative director of the company will be conducted as part of the bankruptcy proceedings.”
Bitcoin exchange rates were relatively stable in reaction to the news. The rate on Bitstamp fluctuated between a low of $494.02 and a high of $548.00, with a rate of $524.99 as of this writing. The rate on Bitfinex fluctuated between a low of $495.00 and a high of $547.00, with a rate of $521.11 as of this writing. The rate on BTC-e fluctuated between a low of $483.17 and a high of $545.00, with a rate of $520.00 as of this writing.