The fallout from Mt. Gox’s 28th February bankruptcy filing is already in full swing, as one bitcoin investor has filed a class action lawsuit in Chicago on behalf of the alleged victims of the troubled Japan-based exchange and its CEO, Mark Karpeles.
Gregory Greene and his lawyer Steven Woodrow, a partner at the Edelson law firm in Denver, Colorado, filed a complaint against Mt. Gox and Karpeles in the U.S. District Court on Thursday, claiming the company was fraudulent and negligent in its failure to protect customers against theft.
Woodrow, who submitted the lawsuit to the Northern District of Illinois in the U.S. District Court, stated his position on the filing, saying:
"This is a case of serial mismanagement, if not outright fraud, by Karpeles and Mt. Gox."
Greene estimates that his stake of bitcoins tied up in Mt. Gox is around $25,000. Still, the reported shortage of 850,000 bitcoins at Mt. Gox puts the total estimated value of lost bitcoins at over $475m at today’s market price, meaning the lawsuit could be the first of many.
Edelson partner Chris Dore spoke to CoinDesk about the case, confirming that interest in joining the class action is already high.
Framing the case
Dore said that the Mt. Gox case is a natural extension for his law firm, which specializes in consumer tech cases relating to online privacy and data breaches. He noted that though this is the law firm's first bitcoin case, they've been interested in the space for some time and even "started investigating" the Mt. Gox incident before they were contacted by Greene.
As for whether they'll be able to try the case in the US in light of Mt. Gox's status as a Japan-based organization, Dore was unconcerned, saying:
"We moved under US law. They have a US entity that is here and they do business in the US, so at the most basic level they've subjected themselves to the jurisdiction of the US.
So, we don't have to worry about Japanese laws and how they apply."
Dore admitted there would likely be "some issues" given the company's location, but said he's "confident that [his firm] can work through those" on behalf of its clients.
Failure to provide security
Central to Greene's case it seems will be the assertion that Mt. Gox had the obligation to uphold appropriate security on behalf of customers, and that this failure amounted to negligence.
Argues Greene in a statement:
"Mt. Gox intentionally and knowingly failed to provide its users with the level of security protection for which they paid."
Dore echoed this concern, stating:
"Part of the reason that you pay a company like this is to provide a security service. Part of that fee is the promise they're making to keep their money safe."
The lawyer continued alleging that Mt. Gox effectively allowed a "slow bleed hack" to occur, one that its purportedly improper accounting practices were ill-equipped to detect.
Valuing the loss
Dore indicated that exactly how class members would be reimbursed, if needed, was still "an open question," but that he already sees a number of ways any lost bitcoins can be properly valued.
In particular, Dore suggested that prices could be fixed at the time of Mt. Gox's decision to abruptly suspend service, or at any other similar point.
"There is a sliding scale because it is a fluctuating currency, but you can look at it from a timing perspective."
As to the issue of whether any bitcoins will prover recoverable, Dore, too, was optimistic. Said Dore:
"Simply because you've declared bankruptcy doesn't mean that you have no money. We don't know, that's the bottom line. That's what the purpose of the lawsuit is, to uncover where the money went."
First lawsuit of many
Greene’s lawsuit is seeking class action status for himself and other Mt. Gox users, who are asking for monetary damages and restitution. Unfortunately for many, Dore indicated that the class is limited to US citizens only. However, he did state that his firm may file a similar suit on behalf of clients in Canada and other jurisdictions.
Still, interest in the US is high, as Dore indicated, saying:
"Since we've been sitting here on the phone, I've seen three emails come in."
It’s not yet clear who will represent Mt. Gox in its defense, though Baker & Mackenzie, the law firm that represents Mt. Gox in Japan has been named as a possibility.
Baker & Mackenzie declined to comment on the article. For more on the case, view the full filing below.
Image credit: Class action lawsuit via Shutterstock | Additional reporting provided by Tom Sharkey