Bitcoin exchange Mt. Gox files for bankruptcy, hit with lawsuit

Mar 04 2014, 10:58 IST
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Mt. Gox said the exchange, used overwhelmingly by foreigners, had lost 750,000 of its users' bitcoins and 100,000 of its own. Mt. Gox said the exchange, used overwhelmingly by foreigners, had lost 750,000 of its users' bitcoins and 100,000 of its own.
SummaryMt. Gox, once world's biggest bitcoin exchange, says it may have lost half a billion dollars worth of virtual coins.

Mt. Gox, once the world's biggest bitcoin exchange, filed for bankruptcy protection in Japan on Friday, saying it may have lost nearly half a billion dollars worth of the virtual coins due to hacking into its faulty computer system.

The collapse caps a tumultuous few weeks in which the company has remained virtually silent after halting trades of the crypto-currency, shaking the nascent but burgeoning bitcoin community.

Wearing a suit instead of his customary T-shirt, Mt. Gox's French CEO Mark Karpeles bowed in contrition and apologised in Japanese at a news conference at the Tokyo District Court, blaming his firm's collapse on a "weakness in our system", but predicting that bitcoin would continue to grow.

"First of all, I'm very sorry," he said. "The bitcoin industry is healthy and it is growing. It will continue, and reducing the impact is the most important point."

Angry investors have been seeking answers for what happened to their holdings of cash and bitcoins on the unregulated Tokyo-based exchange.

Gregory Greene, who estimated his bitcoin stake at $25,000, filed a lawsuit in the U.S. District Court in Chicago late on Thursday, saying Mt. Gox had failed "to provide its users with the level of security protection for which they paid.

Baker & McKenzie, a Chicago-based law firm that represents Mt. Gox, declined to comment. It is not yet clear if the firm is representing the exchange in this lawsuit.

Mt. Gox said the exchange, used overwhelmingly by foreigners, had lost 750,000 of its users' bitcoins and 100,000 of its own. At the current bitcoin price of about $565, that would total some $480 million - representing about 7 percent of the estimated global total of bitcoins.

"This may be telling for the level of traceability of the transactions. Bitcoin has been telling us that it is more traceable than cash. The question is, how much more and is there the potential for real recourse in the case of theft," said Moshe Cohen, assistant professor at Columbia Business School in New York.

Mt. Gox said there was a discrepancy of 2.8 billion yen in its bank accounts when it checked on Monday. Junko Suetomi, a lawyer with Baker & MacKenzie, said she could not comment on the balances of foreign bank accounts held by the company.

PROBLEM WITH EXCHANGE, NOT BITCOIN

Many bitcoin market participants have said Mt. Gox's problems were specific to the company and were caused by what they said was a lax attitude

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