Mt. Gox Revival Plan Hit With Objection from Creditor CoinLab

Pete Rizzo
May 27, 2014 at 16:35 UTC
Updated Aug 20, 2014 at 17:33 UTC

CoinLab, the former operations manager for Mt. Gox in the US and Canada, has filed an objection to the plan to revive the now-defunct exchange issued by Sunlot Holdings, an investor group that includes John Betts, Matthew Roszak and Bitcoin Foundation board member-elect Brock Pierce.

A Seattle-based digital currency company, CoinLab entered into an agreement to handle the purchase, sale and exchange of bitcoin for Mt. Gox customers in the US and Canada back in November 2012. It later filed a lawsuit against Mt. Gox, claiming it was not provided with the adequate resources to fulfil the agreement. Mt. Gox later countersued in September both lawsuits are still unsettled.

The formal filing asserts, among a laundry list of claims, that the proposal by Sunlot “does not account for the claims of other unsecured creditors” (including CoinLab) and thus needs additional consideration before moving toward any final approval.

The complaint reads:

“In an attempt to obtain approval of the Sunlot Proposal, Sunlot has crafted a procedural maneuver that attempts to cram down the proposal upon creditors, while avoiding competitive bidding or other meaningful creditor safeguards.”

The submission is expected to be addressed in a status conference in a Dallas, Texas, court today.

New uncertainty

The proposal, championed by the global legal team representing the exchange’s former users, was given preliminary approval by a US court on 8th May.

At the time, representatives of the class action told CoinDesk they were optimistic that the plan would soon move to Japanese courts for review. Under the proposal, Sunlot would purchase Mt. Gox for 1 BTC, assuming the company’s liabilities and providing former users with a 16.5% stake in the revived exchange.

CoinLab detailed how it is seeking to ensure its complaints are addressed before any proposal regarding Mt. Gox is finalized:

“Until it receives full assurances that its rights and defenses will be protected, CoinLab is compelled to seek to protect its interests now, before the flawed Sunlot Proposal (and procedural evasion) can gain an unfair advantage.”

Competing bid

Perhaps most notably, CoinLab took aim at Sunlot’s exclusive bid for the exchange, claiming that since its agreement to service Mt. Gox clients in North America is still active, and that as it has direct experience working with Mt. Gox, it is uniquely suited to continue the exchange’s operations on behalf of creditors.

While CoinLab stopped short of issuing a bid, it did raise awareness to the fact that, should it chose to do so, no formal process for this filing is in place.

“CoinLab offers a market efficiency to creditors because it can address disposition of its intellectual property rights in the exchange as well as market expertise. However, no process currently exists for competing overbids.”

These statements were called into question by lawyers representing the international class actions against the exchange, who said in a separate filing:

“CoinLab is factually and legally wrong and seems only to trying to influence the orderly procedures of both the Class Action Litigation and the Japanese court system. CoinLab seems to be doing this because it views itself as a competitor to Sunlot and wants to bid.”

Missing funds

CoinLab also critiqued how the proposal, if approved, would effectively place Sunlot in the role currently being filed by Mt. Gox’s Japanese bankruptcy attorney.

The company argued this would be problematic given that the company has certain vested interests, saying:

“Despite the absence of adequate disclosure and competition for taking on a role more suited to an estate fiduciary, however, Sunlot has made no showing of its qualifications to manage and conduct such an investigation, let alone answered pressing questions about potential conflicts of interest it has suffered or may suffer.”

CoinLab also critiqued the cost that Sunlot plans to impose on former exchange users for certain services.

For example, of the investigation into missing funds rumored stolen from the exchange, CoinLab says that Sunlot will take 10% of net recoveries, a fee it critiqued as “difficult to justify” given that other parties, such as itself, have asked to assist in the process.

CoinLab continued, offering its services for the investigation again, saying it will perform such a service for less, and that further, it is qualified and has a legal right to do so:

“Not only is that data the subject of longstanding CoinLab discovery requests in this Chapter 15 case and other actions, but CoinLab is entitled to that information under its License Agreement as part of its trade-secret protections and other rights.”

Mt. Gox was said to have lost upwards of 700,000 BTC at the time of its collapse, though as much as 200,000 BTC has been confirmed recovered.

Lawyers for the US class action have expressed the desire for additional discovery, speculating that the remaining coins could be currently under the control of Mt. Gox or its related entities.

Additional complaints

CoinLab also took issue with how the proposal would settle claims against former Mt. Gox employee Gonzague Gay-Bouchery and former owner and current equity stakeholder Jed McCaleb, stating that the individuals “do not own or control the asset that they purport to settle”.

It also commented on the relationship between Mt. Gox and Sunlot, claiming:

“Many questions surround the Sunlot Proposal as well, including concerning its principals, their relationship with MtGox, and their potential relationship with other insiders and colleagues of Mr. Karpeles.”

Kobayashi responds

In a separate filing, Mt. Gox bankruptcy trustee Nobuaki Kobayashi discussed CoinLab’s filing, stating that such concerns are not the responsibility of the US courts, and by extension, the exchange’s Chapter 15 bankruptcy filing that they are overseeing.

Kobayashi said:

“Those issues and concerns should be directed to the Foreign Representative and the Tokyo Court in Japan, where the “main proceeding” is pending […] the US acts as an adjunct or arm of a foreign bankruptcy court where the main proceedings are.”

Further, he concluded by stating that, as the Japanese courts are not currently looking at any revival proposals for the exchange, CoinLab’s filing is “premature”.

Objection image via Shutterstock