Texas court grants bankruptcy protection to bitcoin exchange

| Mar 17, 2014 | Bankruptcy |

The world of the bitcoin is so new that most people have no idea what it is or how it works. While it might seem like trading in a nonexistent commodity, bitcoins have real value because a growing number of people have decided they do. Because of that, a whole new industry has sprung up around the exchange of bitcoins.

What readers need to know is that a bitcoin is digital currency. Transfers of this currency take place through the Internet. No bank or government oversees the process, making it very much a “wild west” kind of environment. But as a series of developments in the industry in the past few weeks have shown, when loss of money is involved, the courts are likely to be called on to mediate. 

The case is playing out on a global scale and involves lawsuits and a filing for bankruptcy protection by the company Mt. Gox. Until it’s filing, it served as one of the largest bitcoin exchanges in the world. We offer this take on events to reflect on how complicated financial issues can get and how bankruptcy filing can bring some sense of stability.

Mt. Gox filed for bankruptcy in Japan last month. Last Monday, a judge in Dallas granted temporary bankruptcy protection to the company in the face of two lawsuits filed in the U.S. The question of whether to make it permanent is due to be addressed next month.

One suit was filed by a Seattle-based Mt. Gox business partner, the other is on behalf of consumers who paid Mt. Gox fees for trading services. At the heart of both actions is a claim that the Mt. Gox operation was a fraud.  

Mt. Gox closed its online trading services last month after reporting the loss of some 750,000 customer bitcoins. The company blamed hackers, but one of the suits alleges there is evidence suggesting Mt. Gox principal, Mark Karpeles, moved hundreds of millions of dollars in bitcoins just before filing for bankruptcy in Japan.

The other suit, filed on behalf of traders, seeks recovery of millions of dollars allegedly lost when Mt. Gox’s site went down, preventing trades as bitcoin value began to tank.

Most individual bankruptcy cases are not as complicated as this one, but each is unique. Those considering bankruptcy should always work with an attorney to obtain the optimal outcome.

Source: Reuters, “Mt. Gox files U.S. bankruptcy, opponents call it a ruse,” Tom Hals, March 10, 2014