Mt Gox, the failed Bitcoin exchange, based in Tokyo, that has been granted bankruptcy protection in the US. Tom Hals, writing for Reuters, "the World's leading source of intelligent information," reported yesterday that Mt. Gox had successfully applied for, and been granted, bankruptcy protection. The failed exchange will now attempt to initiate full Chapter 15 bankruptcy proceedings in the United States as it awaits approval of a settlement with U.S. customers and a sale of its business.
Mt Gox was once the world's leading exchange for trading the digital currency, but shut its website earlier this year after saying it lost some 850,000 bitcoins - worth more than $500 million at current prices - in what it claimed to be a hacking attack. It subsequently claimed to have "Discovered" 200,000 bitcoins in a 'misplaced' cold-storage wallet.
The company filed for Chapter 15 bankruptcy protection in March to prevent U.S. customers who had filed a class action lawsuit from seizing all of its U.S. assets, such as computer servers, and demanding evidence of the hacking attack as well as access to Mt Gox executives. Since then, the company and the class action plaintiffs have reached a settlement, which is awaiting final approval in a Chicago federal court.
Judge Stacey Jernigan of the U.S. Bankruptcy Court in Dallas granted recognition of the Chapter 15 case, which allows Mt Gox's foreign representative to file lawsuits and pursue potential funds in an attempt to repay some funds to creditors.
Under the deal, U.S. and Canadian customers will split the 200,000 bitcoins 'found' by Mt. Gox and share in a 16.5 percent stake after Mt. Gox is sold. Sunlot, a firm backed by child actor-turned entrepreneur Brock Pierce and venture capitalist William Quigley, has proposed buying Mt Gox for one bitcoin, or around $600. This deal would have to be approved by the Tokyo District Court overseeing the Mt Gox bankruptcy.
Mt. Gox was based in Tokyo, Japan. It was launched in July 2010, and by 2013, was handling 70% of all Bitcoin transactions. In February 2014, the company suspended trading, closed its website and exchange, and filed for bankruptcy protection, or civil rehabilitation, to allow courts to seek a buyer.In April 2014, the company began liquidation proceedings. It announced that around 850,000 bitcoins belonging to customers and the company were missing and likely stolen, an amount valued at more than $450 million at the time. 200,000 bitcoins were "found.. It is probably fair to say that the reasons for the disappearance of the bitcoins, whether from theft, fraud, mismanagement, or a combination of all three—is unclear. The Mt Gox version may well turn out to be, at best, inaccurate. Mark Karpeles was subpoenaed by the United States Department of the Treasury's Financial Crimes Enforcement Network to appear in Washington, D.C. to provide testimony on April 18, 2014. Karpeles, in a court filing by Mt. Gox lawyers, responded that he does not have a lawyer for this matter and therefore, was, refusing to appear.
It is believed that Mr. Karpeles may well be subject to an arrest warrant within the US.
What is Bankruptcy protection?
"Bankruptcy protection is when an individual or business finds itself to be unable to make payment to creditors to pay off their debts. They can file for bankruptcy protection under the bankruptcy laws of the United States. For a business, bankruptcy protection may either provide complete or partial relief of debts and contracts, assuming the business will remain in operation, or the business may cease operation and sell off its assets to pay debts.
There are two types of bankruptcy protection commonly used by individuals: Chapter 7, and Chapter 13, where “chapter” refers to the chapter of the bankruptcy code that describes each one. In Chapter 7, also called a “straight bankruptcy” or “liquidation”, a trustee is appointed to control the individual’s assets. The trustee then liquidates, or sells the assets, then gives the money to creditors in order to pay off debts, to the extent that this is possible.
Chapter 13, also called “wage-earner bankruptcy”, allows the individual to propose a plan to repay their debts interest-free over a three to five-year period, although the individual’s payment plan is subject to court approval. While in Chapter 13, an individual is protected from creditors collecting on debt or seizing assets to pay debts, and creditors are required to abide by the terms of the approved payment plan. Both types of personal bankruptcy make it very difficult for the individual to obtain credit for a period of seven to ten years after seeking bankruptcy protection."
Above explanation of bankruptcy courtesy of wiseGEEK. Featured image by Shutterstock.
Last modified (UTC): June 19, 2014 5:06 PM