The Mt.Gox soap opera continues.The soap opera around Mt. Gox just doesn’t seem to stop. The once popular Crypto exchange is filing for bankruptcy in Japan and the United States. When taking a closer look at the U.S. filing, it seems that Mt. Gox may have collected a large sum in trading fees in the weeks before the website was shut down. All of this was done while it was fully aware that a large number of Bitcoins had gone missing and that there were problems on the horizon.
· To read or not to read the signs… that is a serious question.
According to some sources and a sworn declaration in the filing from Mark Karpeles, CEO of Mt. Gox, shows that the exchange knew in early February that there were discrepancies visible. Even though they had knowledge of this, Mt. Gox decided to misrepresent the truth a bit towards its customers, just like some banks did during the bank crisis.
Mt. Gox decided to disable Bitcoin withdrawals from the exchange on the seventh of February. The reason for this drastic measure was an ‘investigation of possible fraud, due to a security issue called transaction malleability’. This was the only explanation given and a dubious reason at best, considering how Mt. Gox didn’t disclose any information regarding the amount of Bitcoins missing or “the possibility of being hacked”. Knowing this, Mt. Gox acted like it was “business as usual” and despite being impossible to withdraw Bitcoins from Mt. Gox, trading was still allowed until 25th of February. After February the 25th, the website suddenly went offline.
Now some people began to seriously worry about their hard earned coins. As news regarding Mt. Gox appeared at a rapid pace, the news got grimmer by the day. At the end of February, Mt. Gox filed for bankruptcy protection in Tokyo District Court. The filing reported that “750.000 of its customers’ Bitcoins were missing, along with 100.000 of its own”. In March Mt. Gox would file for bankruptcy protection again and this time it was in the United States.
It appears from this filing that Mt. Gox executives had knowledge of the company’s losses well before the website was shut down. It also appears that Karpeles was aware of the severity of the problems 19 days before its public disclosure, but didn’t report to his customers what was really going on. Traders were led to believe that a solution would not be far away. Why Mt. Gox allowed its customers to keep trading after withdrawals were halted is unclear. It could possibly be that the CEO himself wanted to milk the cow for whatever it was worth.
· Highway to lawsuits.
There may be a possibility to learn why Mt. Gox acted the way he did. The exchange will have to answer several questions why it kept on trading Bitcoins that weren’t there and why they were so slow to report the theft. This can be accomplished at the lawsuits that have been started up against Mt.Gox. One of these was filed in Chicago on February 27, another is planned in the United Kingdom and with more lawsuits to follow.
Proof that something fishy was going on at Mt. Gox can be found all throughout the web on trade charts and other information sources. According to Bitcoincharts.com, a site that records trading volumes for many Bitcoin markets, Mt. Gox was still processing thousands of trades a day after the withdrawal stop. An average of 49,912 bitcoins was traded daily on Mt. Gox between Feb. 7 and Feb. 25, at an average weighted price of $380.54 per bitcoin (give or take a couple of dollars).
The whole Mt. Gox story has been a bizarre series of events. As information comes to the surface, the fishier it gets. Karpeles clearly knew what was going on and blatantly refused to inform his customers. He should have shut down the site completely when he learned how big the problems were. Nobody knows what will happen next and if or how Mt. Gox will try to compensate its many customers. But if experience is any indicator that cat will go to jail (or completely avoid it) with a boatload of money in his offshore bank accounts.