Topic: New Mt. Gox class action in U.S. (Read 6486 times)

http://www.coindesk.com/government-backed-bitcoin-industry-association-launch-japan/

How to flip the Mt. Gox depositors' story "positive"?

Should probably talk to these guys. Mt. Gox depositors need someone on their side to make sure they get a fair shake. Things are not looking so great at this point.

I agree. In fact the best you can probably hope for is to talk the Japanese government into overseeing the actions of the Tokyo court in order to make sure that it is not defrauded. 

Good luck getting any judgement granted in the USA to fly in any Japanese court.

The situation requires you to be your own medic. There is really nobody looking out for Mt. Gox depositors - in fact they have been officially redefined as "creditors" by the court, or as Investopedia says, a creditor is "An entity (person or institution) that extends credit by giving another entity permission to borrow money [emphasis added] if it is paid back at a later date."

Once again, depositors would gain a valuable ally by getting the Japanese government on their side. This is a lot more likely to happen should some benefit be found to offer in return. That's why I suggested cooperating with their development strategy which is hinged upon using bitcoin for micropayments in developing Asian economies. They need the bitcoin tech community to get on board with it.

If that is the case, there are unintended casualties. These are some of the first people that saw the light. Where are the medics?

Depositors have bought into the whole false reality of a hacked Mt. Gox, when it is provably false, and have become utterly convinced to passively await their fate at the mercy of the Tokyo bankruptcy court. It never occurs to anyone that some very clever people have been manipulating the whole situation, behind the scenes, in order to create the outcomes that they have wanted.

I was always taught to "question my assumptions", yet I fear that's not a very popular outlook these days. Most people would rather just be spoon fed their opinions by the media, when it is well known, that with enough money, one can greatly influence media through public relations and manipulation. Why would anyone do that? I can give you about 500,000,000 or 650,000 ones, depending upon which flavour of dough you prefer.

One final note:

* Attorney Nobuaki Kobayashi, the Mt. Gox court-appointed bankruptcy trustee

* Kobayashi Maru    http://en.wikipedia.org/wiki/Kobayashi_Maru
Please read this wikipedia entry about Star Trek, and tell me whether it doesn't sound very analogous to what the Mt. Gox depositor's have experienced?

Don't you ever get the feeling that some very clever fellows are ROFL at depositor's expense, and have left behind this Trekish clue as their calling card?

Mt. Gox depositors, as a community, are missing a serious opportunity to obtain justice in Japan should they fail to build bridges with the committee within the ruling Liberal Democratic Party that is trying to address bitcoin and Mt. Gox. The committee's stated goal is that “Japan should become the world’s easiest place to run bitcoin businesses", but I'd say "not so much" unless they can help clean up the Mt. Gox situation and assure depositors are made whole.  

This is absolutely how most businesses operate. I just wonder to what extent MtGox used an LOC, as they must have known any LOC would have been a cash flow risk. Or I suppose, maybe they didn't, being more tech then biz oriented. I suppose that their own bank may have suggested it, even pushed it on them, as a way to stop getting the daily call, "Did the check come in from Poland?"

Even if they did have an LOC, what was the average weekly trading volume versus the total liquid asset base (fiat + Bitcoin)? I imagine weekly trading was no more than 10% of the entire asset holdings, therefore the LOC wouldn't have needed to be much more than that.

I am looking at your asset stripping idea. Maybe banks put the FIAT squeeze on MtGox, and Karpeles seeing the injustice and afraid of further losses, hid the Bitcoin to protect his users. Now he just needs enough evidence to prove that he didn't loose $100million USD, so that he can give $500 million USD worth of Bitcoin back to his depositors. The move by the Japanese government today is probably a step in the right direction.

I suppose it is possible they simply lost 200k BTC, but that's not consistent with their bankruptcy filing. Mt. Gox has always been careful to use the word "disappeared" or the term "unable to access" with regard to the missing bitcoins. To me that implies they knew all along that at least some of the bitcoins were still around, and not, as now claimed, removed by some "massive theft."
From what I can understand, the removal of bitcoins through the exploitation of transaction malleability would require a degree of social engineering. Someone would have to request a refund for bitcoins that appeared to have been sent by Mt. Gox, but supposedly could not be verified by the hacker-recipient. Then a Mt. Gox person would actually have to manually make such a refund. That either suggests that it didn't happen that way, or else if it did, perhaps a confederate of the hacker(s) was operating inside Mt. Gox.

Nevertheless, the scenario as you outline it seems rather far-fetched, because it requires one to believe that Mt. Gox lost track some time ago of how much it had in cold storage. However, there are records of an IRC chat with CEO Mark Karpeles during mid-2011 in which he moves 424,242 BTC from one wallet to another as a demonstration of Mt. Gox's solvency. So, at least by this early date, it appears Karpeles did have a handle on how much was in cold storage.
True enough, and I can quote you numerous press reports from the fall of 2013, during the big price spike occurring at that time, in which Mt. Gox customers were wanting to withdraw fiat, yet had to suffer very long delays in having their withdrawals completed. That does indeed suggest a shortage of fiat, for otherwise why else would there by these long delays?
I'll concede you're right on this point, at least a little, as I've seen no evidence that Markus and Willy (the  two bots) ever sold bitcoin--only bought them. Though, that does not change any the basic argument I made. Buying bitcoin without ever paying for them suggests that they were bought on margin. These bitcoins could have been unloaded in a private placement[s). The point being that if the bitcoins, purchased by the bots, were actually never paid for, and afterwards through some means sold, then that effectively constitutes an uncovered short position.
The LOC could be used to handle any situation whenin there was some urgent need to cut a check, or send out a wire transfer, yet Mt. Gox was still awaiting deposits to clear. As previously mentioned, the Swiss investigators, CCI, discovered a pattern of mis-routing deposits bound for Mt. Gox from Europe. These deposits would have been handled by the European network of correspondent banks to Mizuho Bank in Japan.

I don't think they every actually "lost the 200k" wallet, they rather tried to take bitcoin out of their cold storage only too see that the cold storage was (virtually) empty. As far as I can tell they did not have a good way to keep track of their cold storage addresses and they assumed that all were empty. When they later discovered that they controlled 200k in bitcoin they disclosed it.

They blamed the malleability issue, other exchanges looked into the issue and determined it would really not be a threat to them. There have been reports that malleability could not have done the damage that was done to GOX but the scope of time that this research did was less then the time that GOX was in existence, it would be very possible that a large part of this kind of attack happened several years ago, in GOX's early days when bitcoin was worth much less.This kind of attack could have happened when the price of bitcoin was much lower and would not have had as large of an impact at the time.

As far as the bot trading is concerned, anything that says the were manulipating the price of bitcoin is crazy. There is evidence that they were trading on behalf of large investors. If they were buying from others without any "real" person paying the price that the bots paid for the bitcoin and receiving the bitcoin that the bots purchased then the exchange would have a massive shortage of fiat. If the bots were "trying to suppress he price of bitcoin via a massive uncovered short positiion" then the exchange would have a massive surplus of fiat to the turn of tens (if not hundreds) of millions of dollars. The trades that the bots executed were (almost) always buy orders so a short position would make even less sense. I don't think there is evidence that has been leaked that shows the bots sold bitcoin to that degree.

I don't follow your logic to say that GOX would have needed a credit line to fund their short term liquidity needs. It is my understanding that GOX only used one bank (it was in Japan) for receiving deposits from customers and processing withdrawals for customers (and for any other banking needs that the exchange had).

I agree, and the more thorough and sooner it can be completed, the better.  So far, the investigation, perhaps understandably so, has been rather opaque--yet that's not exactly the open collaboration way of doing things.

Having a LOC is a very common business practice in order to help manage cash flow. Most businesses of any size use them. It's not related to them 'livin' large', or not.

The truth will come out in the bankruptcy investigation if this is true and the investigator passed a basic college-level accounting class. It is far too easy to follow the money.


The bank forced cash - squeeze theory certainly has the right motive, but I don't think MtGox would have had a great need for a LOC. While they seemed to live a lavish lifestyle, from the numbers I've seen, it is not much for the profits they were generating.

The actual bankruptcy filing says a lot of interesting things, including blaming the shortfall on the bitcoin transaction malleability bug. However, this claim has elsewhere been thoroughly debunked. Mt. Gox appears to have experienced a very confusing situation, especially so far as losing the 200K bitcoins, and then later finding them again in the old-format wallet. It's very obvious though that they weren't really ever out of bitcoin, and certainly could have finessed this situation much better had they any mind to do it. It's not at all clear that they ever needed to declare bk. In fact depositors might have responded quite well to a frank admission that "we screwed up, but are going to fix it."
You are forgetting about the fact that there are always two sides to every trade. If the bots bought bitcoins, then they probably sold them too. The bots purpose may have been to suppress the price of bitcoin through a massive uncovered short position, not inflate it as claimed in the media. There were no trading fees charged for at least one of the two bots' trades, so perhaps their buys could have gone unfunded too.
I would assume like most businesses, Mt. Gox carried a line of credit with its bank to fund any routine needs for liquidity--for example, to pay back a depositor for an incomplete trade, as you mentioned. The actual status of cash deposits and withdrawals are very unclear in this situation, especially considering what the CCI investigators uncovered, suggesting that deposits bound for Mt. Gox from European depositors were deliberately  misrouted by its banks. These kinds of conditions could have resulted in a cash squeeze/illiquidity. Had its bank reacted by revoking Mt. Gox's line of credit, then that would completely dry up its access to cash.

You are correct, but only if they had known about the 200k wallet prior to halting withdrawals. I think they halted withdrawals because they thought they ran out of bitcoin. If they had found out about the 200k wallet after they stopped withdrawals then they would likely had a "run on the bank" Although this would be very unethical they could have sold that 200k btc on other exchanges and then purchase it back from customers on the GOX exchange. They probably couldn't have made 550k BTC (the amount of lost customer btc minus the 200 btc) from doing this but could have made a pretty penny.

I doubt the failure had anything to do with the bots. It wouldn't even make any sense for them to short via bots when the bots were what was making the prices go up. If anything then they should have been short cash and had extra BTC.  I personally do not believe any of the conspiracy theories about those bots, I believe that the bots were simply large investors trying to purchase large amounts of bitcoin without causing the price to spike.

The article didn't mention exactly what the debts were, but wasn't that about what customers were owed that had fiat deposited with them? Say for example you wired $1,000 to GOX but did not buy any bitcoin from them. They would owe you $1,000 in dollars and nothing in BTC. If I had deposited 2 BTC with GOX and did not sell it then GOX would owe me 2 BTC and nothing in fiat

Had Mt. Gox "known" about the 200K BTC in the old format-wallet, they may never have even declared bk, because they would still have been liquid enough to operate as a fractional-reserve "zombie" exchange, and in time could even have repaid everyone out of their trading fees. So, the bankruptcy declaration was doubtless a mistake.

As long as we're on the subject, it appears more than likely the claim that Mt. Gox lost 850,000 BTC could also have been wrong. They may never have had more than the 200,000 BTC found stashed in the old-format wallet. The narrative runs that 650,000 BTC are still missing, yet 650,000 is the exact same number of BTC traded by the two bots, Markus and Willy. If in fact the BTC traded by these bots were never paid for, then their trades could well constitute a massive uncovered short position, and this could easily explain why more BTC appear on the books than actually ever existed. For more on Markus and Willy, see http://www.theguardian.com/technology/2014/may/29/bitcoin-bots-bought-millions-in-the-last-days-of-mt-gox

Finally, you mentioned that Mt. Gox did not have many debts beside the bitcoins and cash owed to depositors. The actual amount of debt exclusive of what was owed depositors, as stated in the bankruptcy filing, was $63 million. Source: http://www.coindesk.com/mt-gox-files-bankruptcy-claims-63-6m-debt/

GOX did not "know" about the 200k BTC wallet/address until after they filed bankruptcy.

They froze withdrawals when they though they had run out of coins. Over the next several weeks they tried to make back their coins by arbitrage, trading fees and customers depositing BTC. They were not successful.

Uh, people.........................

It's over.

Deal with it.

It's unlikely the bankruptcy was declared merely because Mt. Gox couldn't repay all of its depositor's BTC and cash withdrawal requests. By its own admission it still held over 200K BTC (in the old-format wallet). It would have probably chosen first to play fractional reserve banking, or Bernie Madoff 2.0 with those 200K coins, rather than declaring itself bankrupt and risk having the company liquidated.

Most depositors would probably have been better off had the bankruptcy never been declared. At least the smaller depositors (say, those with fewer than 1,000 BTC) in  piecemeal fashion could have withdrawn their coins sourced from the 200K Mt. Gox wallet.

Did you mean to say that the bankruptcy was declared by mistake, because Mt. Gox still held 200K BTC, and could have used them to fund any withdrawal requests? If so, then I could probably come closer to agreeing with you.

You say that Mt. Gox had few debts, yet more than likely, the bankruptcy was brought on by a credit squeeze. Do you have some actual knowledge that would indicate otherwise?

GOX has very few other creditors (may their employees, and possibly a few vendors).

Grouping depositors with these other groups would likely have a very small impact on the ultimate payout