A class action against Mt. Gox is being organised by a London law firm that says it will go after CEO Mark Karpeles personally to recover its clients’ lost bitcoins.
Selachii LLP says it is representing over 200 claimants from China, the US, Canada and 12 European countries, and that it will launch proceedings against Karpeles “wherever in the world he is”.
They also are in discussions with lawyers in Japan to mount a case against Mt. Gox, which has filed for bankruptcy in Japan after admitting it had lost around 750,000 its customers’ bitcoins. One of the claimants in the lawsuit has lost over 4,000 coins, which equates to $2.3m at today's exchange rate.
The lawsuit may also make a claim against Tibanne, Mt. Gox’s parent company, which was founded by Mark Karpeles.
Separate legal action was also launched against Mt. Gox and Karpeles in Denver, Colorado, on Thursday by Mt. Gox customer Gregory Greene.
Fraud accusation possible
With Selachii taking action on multiple fronts, Mark Karpeles could find himself defending Mt. Gox’s actions on at least two continents.
Richard Howlett of Selachii says that the facts around the closure of what was once bitcoin’s largest exchange “don’t add up” and that the court action would force Mt. Gox and Mark Karpeles to prove that the huge bitcoin hack actually occurred:
“I don’t know if it’s true that they were hacked, no one knows if it’s true. but that’s something that will come out in court. I will be surprised if it’s as simple as they were just hacked.”
Howlett also raised questions about the loss of fiat funds in addition to Mt. Gox’s bitcoin, which can’t be explained by the hacking of data in the same way as a loss of bitcoin.
Mt. Gox’s public statements reassuring their customers that all was well could come back to haunt the company.
If the company and Karpeles were aware of Mt. Gox’s dire financial situation – which, considering the scale of the issue, is a plausible assumption – Howlett says they could be accused of behaving fraudulently by inducing customers to continue to invest their money in the exchange:
“They had to be honest [with their customers]. They should have stopped everything, because it appears that they were in serious financial difficulty.”
This element of potential liability could explain why Mt. Gox deleted all of its tweets in the days leading up to its eventual demise.
Furthermore, how bitcoins were allegedly stolen from cold storage will be a key technical point, with Howlett suggesting that one explanation could be they were never in cold storage and that Mt. Gox was acting negligently.
Once a leading member of the bitcoin community, Mark Karpeles bowed deeply last week at the press conference in Japan announcing Mt. Gox’s bankruptcy filing.
The lawsuit could yet see him on his knees if his personal wealth is plundered to pay back Mt. Gox customers. Howlett says that every part of Karpeles’ wealth will be targeted:
“His bank accounts will be scrutinised, his finances will be scrutinised, any offshore accounts, all those sorts of things – if there’s money there, those assets could be pulled into the pot to distribute to the people in the class action.”
Hunting down a person’s assets could prove difficult, however, if they are largely held in bitcoin wallets. Proving ownership of bitcoin assets is not straightforward, even if it is possible to find them in the first place. Bitcoin’s held in cold storage could be hidden in any number of offshore locations.
It is is likely that assets owned by Karpeles, Tibanne and Mt. Gox will be frozen to prevent them being liquidated or hidden once the lawsuit is underway.
Mt. Gox win?
If the lawsuit succeeds, there will be a crucial legal battle about whether any payout should be in bitcoin or in fiat currency.
The value of bitcoin may have risen enough by the culmination of the case to make a fiat currency payout small compared to the total value of any remaining bitcoin in Mt. Gox’s control. Many of Selachii’s clients in the lawsuit are not necessarily looking for their bitcoin back, just their money, says Howlett:
“Many people have got their fingers burnt. The vast number of people we’ve spoken to would rather have the financial value back instead of bitcoin, they’ve been scared off now.”
If the lawsuit is settled in fiat currency and not in bitcoin, then “Mt. Gox could end up winning”, says Howlett, even if the allegations against them turn out to be true.
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