Analysis – What do we do now?

The big bombshell from the creditors’ meeting is that it was officially announced that the creditors’ 200,000 bitcoins are going to be sold off and a maximum of approx $473 per bitcoin will be paid back to the creditors. The rest will go to the owners of MtGox, effectively Mark Karpeles and Jed McCaleb.
This is something we all knew was an issue but to hear a direct acknowledgement that that’s the official course of action was a surprise. It means most of the value of our bitcoins will probably be lost, and the Japanese authorities are not going to try to do anything to stop it. This is a full-scale bankruptcy disaster.

Mark Karpeles has claimed he doesn’t want the money due to the lawsuits which would inevitably target him, but when asked to make a statement on Reddit saying he would give the creditors the money back, he did not respond.
This is an important point. He cannot continue to cultivate his new “nice guy” image and claim he doesn’t want the creditors’ money, while at the same time avoiding stating that he will give the money back. It’s one or the other and he now has to make a choice.


Why is the trustee doing this?

For the trustee, this is the safest option. This whole situation is very complicated, and if he was to take another course of action it would be difficult to find and manage a solution which pleased everyone. If he tried anything unorthodox, he’d be likely to attract complaints from somewhere.
Decisions made in the Japanese legal system tend to err towards equality rather than efficiency, so it might be considered better to give everyone a bad solution than to give most people a good solution but have some others complaining about it.

For example, if he was to attempt to re-evaluate the bitcoins at their current value it may draw complaints from the trustee of Tibanne’s bankruptcy. Tibanne’s trustee is obviously going to try to suck as much money out of MtGox as he can, and the nature of his job means he may not be allowed to take morals into consideration. So if a motion is filed which would pass the value of the bitcoins to the MtGox creditors rather than to Tibanne he’d be likely to complain about that and there’s a good chance the court would take the “safe” decision and refuse the bitcoin evaluation change.

What is very noteworthy is that in this creditors’ meeting the trustee kept stressing “this is the law” and similar things. Basically saying he’s sticking as close to the vanilla bankruptcy route as possible and not acknowledging that there may be other possibilities. He has made decisions before which stray from the vanilla path, such as not selling off the bitcoins at the start of the bankruptcy. But it looks like he’s clamping down now.


Can something be done to fix this?

Absolutely, yes it can. This is now down to the creditors to fix, so it’s time to get busy!

The two main angles are legal and political.

From a legal point of view, this problem may or may not be solvable. Creditors need to try as many ways as possible and we need to coordinate efforts as much as possible.
From a political point of view, this is most definitely solvable. The laws which have caused this disaster were written when the world was different, and they can be updated. In my next post “The Next MtGox is Now just Around the Corner”, I will argue why it’s only a matter of time before the laws do get updated. How fast it happens is down to political will, and that in turn is down to us creditors.


What do we do now?

T    NC

The next step is clear. We have to create the biggest creditor group possible. Let’s make the biggest group in Japanese history. This will give us strong leverage both inside and outside the bankruptcy. I’ve already been working on this. Expect to see more details and an announcement soon.

Just throwing a few things out there:
We also need to start creating structures of organisation instead of everyone running around panicing and doing their own thing in isolation. So as well as a creditor group, we need people cooperating on legal solutions.
The media will be indispensable to us and they love a good bankruptcy. This requires careful planning.
This is now my day job and I’m going to be following this up with regular updates. I’ll try to be more active on Reddit too.

Creditors’ meeting, 27th September 2017

This was an extremely short meeting. I didn’t check the exact time but it was probably about 40 minutes in total.
The Dutch ambassador was supposed to be present in the meeting to represent the Dutch creditors, but despite a lot of paperwork being prepared in advance he wasn’t allowed into the meeting!
The meeting was ended after around 7 questions. My interpreter didn’t get a chance to ask my questions, though half had been asked by other people.
One thing my interpreter said was, he felt that throughout the session they were trying to avoid answering the questions and just passing off the minimum they could get away with. This is the same as I noticed in the other creditor meetings.

I was pretty annoyed when they ended it. The meeting is only twice a year and it’s the ONLY time when creditors can get updated about one of the biggest bankruptcies in history. We are paying for these people to be there at the meeting updating us, and we are paying for the whole shebang. Their responsibility is to listen to our questions at the meeting, and not to answer them poorly and then slip off after 20 minutes.
Someone actually brought something similar up in the meeting, that the transparency and frequency of updates was terrible. But as far as my interpreter can tell they didn’t answer that.

List of questions and answers
Due to translation difficulties and lack of time I’m not going to go into full details but just paraphrasing the main points of them.

1) What will happen to the surplus over $483 per bitcoin generated from the sale of our bitcoins?
A) The money over $483 will go to the MtGox shareholders

That was the big one! The hydrogen bomb of the bankruptcy. Everyone now was in shock, or at least I was. I didn’t actually expect them to answer this question. This means that in all probability most of our bitcoins will be lost to the company shareholders, and it means that the trustee is not doing anything to stop this happening. I hope this becomes the pivotal moment when everyone has had enough shit. For me it certainly is. More on this soon.

2) What happens if any bitcoins are retrieved from BTC-e?
A) They will go into the asset list and the money will go to the shareholders [not the creditors].

3) Can you be more transparent? Updates twice a year is not enough. And how are you holding the bitcoins? Are they insured?
A) We can’t say how the bitcoins are stored, and we don’t know of any way of insuring them. [AFAIK there was no reply about the transparency]

4) The bitcoin price is unstable and selling them could cause it to drop. Are you selling all 200k? Who will help to sell them?
A) We are selling ALL the 200k. How we sell them is not yet finalised.

This is at odds with the handout sheet, which says they don’t know yet whether they’ll be selling them or distributing them directly.

5) This wasn’t a question, but rather a Japanese creditor making a long statement. He said he believed we should get our bitcoins back because they are a tangible asset such as other financial assets, and therefore should be defined as property – and property is returnable outside of a bankruptcy. He said he was forming a union.
A) The trustee said the bitcoins were NOT returnable, and that forming a union was his choice and he couldn’t comment on it.

“This will be the last question.”

6) Is there any new information about Coinlab?
A) We are working on the Coinlab case and we don’t have anything to share. 

“This will be the last question.”

7) Do you have the Bitcoin Cash from the bitcoins?
A) Yes, we haven’t decided yet whether we’ll sell it or add them to the assets list. We are going to end the meeting now.






Our legal fees are substantial, yet only a drop in the ocean compared to the money that’s at stake in the bankruptcy.

For the month of July 2017 they were around $16,000 USD and we’ve yet to receive August’s bill. I am covering the cost of these myself and I would like to request BTC donations towards them.

For details on the current aims of the legal help please see the post entitled “Update on bankruptcy situation.” As more things are added we’ll provide an updated list. The amount of funds raised will determine how much legal help we can get. There are many avenues to explore. None of the money will be going to myself.

The fund will be kept transparent. All receipts for money paid from the fund will be available on request.

Kolin Burges

Coinlab, Priority of Claims, and Ending the bankruptcy

The bankruptcy cannot end until the Coinlab lawsuit is ended in some way. The feeling amongst many creditors is that Coinlab is gaming the system with a meritless claim for $75m and effectively holding up the bankruptcy in order to scoop up an exorbitant payoff from our funds.

Unfortunately, if their claim is accepted it would most probably have the same priority as those of the depositor creditors. This of course goes against conventional wisdom. If someone steals something from you and is caught by the authorities with it, you would expect the authorities to hand it back to you and not sell it to fund the personal debts or lawsuits of the thief.

In addition to the Right of Segregation mentioned in the previous article, bankruptcies have the concept of priority of claims to deal with this kind of situation. Some claims can be given “preferred” status and some “subordinate”. However, under Japanese law only certain types of claim can be preferred – such as wages, taxes, pensions, etc. Bitcoin deposits would not be included. Similarly, it’s unlikely the Coinlab lawsuit would be given subordinate status.

The trustee has been trying to dismiss the claim on the grounds that what Coinlab claims to be an agreement with MtGox is invalid. But it’s up to the district court and not up to the trustee. Coinlab is obviously fighting to avoid this. It could easily take a couple of years for a final ruling. That leaves everything in a long, slow stalemate for now. The trustee has the option of offering a settlement to end the claim and we don’t know yet whether this is his plan. This is most likely what Coinlab is aiming for.

Why our bitcoins are stuck in the bankruptcy

Under the laws of Japan, owners of “property” or “things” being held by a bankrupt entity are entitled to get that property directly back, without entering into the bankruptcy system and sharing that property with creditors. This is called the Right of Segregation, meaning that the property should not be mixed with the bankruptcy estate.

In the MtGox bankruptcy the bitcoins were not returned to the owners as property should be, so in 2015 there was a lawsuit to get the bitcoins given back to the depositors. The court refused on the grounds that it claimed that bitcoins are not tangible therefore could not be ownable and considered as property. This is the reason why our bitcoins are trapped in this bankruptcy.
The Financial Services Authority in Japan, a government organisation, has since classified bitcoins as property. This is certainly very interesting and we’re looking further into this at the moment.

This seems like a serious flaw in the legal system. For example, any company or person in Japan holding the keys to certain assets such as investments, could surely push themselves into bankruptcy and pocket any appreciation in value – effectively taking over the investment benefits for themselves.

The Japanese government has already amended some laws to modernise the system to take account of cryptocurrencies in the wake of MtGox. They did it possibly to demonstrate that the MtGox disaster was being addressed (though they failed to address the most important issue, and there will be an article about that at some point).
It’s expected that more laws will be updated too, such as the Banking Act. Perhaps there could be scope for updating laws to allow digital assets such as bitcoins to be ownable property. That could be one possible route for ending the bankruptcy without giving the bitcoins to the shareholders.

Who will get our 200,000 bitcoins?

Quick summary of the problem – our bitcoins were valued by the trustee at approximately $483 at the start of the bankruptcy but are now worth an order of magnitude more. This means that the MtGox administrators can sell our 200,000 bitcoins, pay us a fraction of the money from the sale, and regard our claims as having been paid in full. The rest of our money may go to the parent company Tibanne, meaning the Tibanne shareholders Mark Karpeles and Jed McCaleb would be the beneficiaries. Karpeles claims he doesn’t want the money because of the personal lawsuits it would attract, but says has no power over the process.

The lawyers were initially upbeat about the prospects of the creditors receiving the full value from their sold 200k bitcoins. But after more investigation their advice is now that it looks like the bitcoin creditors could be paid only the original valuation amount at around $483 per bitcoin, and the value above that would be passed into the company liquidation. Liquidation is performed under corporate law rather than bankruptcy law, and the remaining money in the company would go to the shareholders. They don’t currently know of a way to avoid this situation. This is not good news.

Please note that the rest of this post is my personal opinion and not necessarily that of the lawyers.

The thoughts and plans of the bankruptcy trustee are as yet unknown. He may be able to perform actions which can change this. Give his stature and the uniqueness of a bitcoin bankruptcy, his suggestions hold a deep influence over the bankruptcy court. They must always comply with the letter of the law, but laws are often not clear-cut when applied to particular contexts – especially one as unprecedented as MtGox. And so there could be scope for either movement within the bounds of the law or for varying interpretations of the law.
The trustee’s responsibility is to maximise return to creditors in a manner which is fair and in the interests of justice. If the creditors’ money passed to the shareholders it would be neither fair nor in the interests of justice. The question is how able and willing he is to achieve this within the constraints of the law.

The lawyers have advised that the best way to discuss this situation with the trustee is to ask at the upcoming creditor meeting on 27th September. I’ll be at the meeting to ask that and other questions, and will be providing a report here.
Having been to these creditor meetings before, I expect we won’t get a significant answer on this. The meaty questions are rarely answered. Creditors come out of that meeting looking about as satisfied as a Bitcoin Core member who’s wife just sold all his bitcoins for BCH.

If we don’t get a resoundingly positive and clear answer at the meeting, I’ll regard this bankruptcy and our money as being in a critical state of emergency. At that point I think it should be a major concern for everyone who wants their bitcoins back.
I’ve been making plans for if this happens. I’ll be spending at least the next 2 months working on this full-time and longer if necessary.
For what it’s worth I believe the situation can be resolved, but it may only be possible if we are all willing to push hard enough for it.
Let’s see what happens at the creditors’ meeting.

Update on the bankruptcy situation

As mentioned previously, I hired a law firm in Tokyo to help out with some issues with the bankruptcy.
They have been asked to look into 5 things so far:

  1. Sorting out who will be the beneficiary of the creditors’ 200,000 bitcoins, due to the legal technicality of MtGox now being solvent.
  2. Looking at options for speeding up the bankruptcy process, in particular finding out if there are any options in managing the Coinlab case.
  3. Looking into ways of creditors being represented as a group in order to have a louder voice.
  4. Increasing the transparency of the bankruptcy process.
  5. Trying to reserve seats for creditors at the Karpeles trial so we know what’s happening in the trial.

1. and 2. are covered over the next 3 articles because they’re a bit lengthy for one post.
3. This will be covered in a future post.
4. If the trustee is opaque about much of the state of the bankruptcy there’s not a lot which can be done to force things. In theory creditors should be given important information about the progress of the bankruptcy, but only if it is not deemed to be against the interests of the creditors for the information to be released. Requests could be made to the trustee for more transparency but it seems unlikely this would have much effect. Complaints could be made to the court but if the trustee claims the secrecy is in the interests of creditors then the court would be likely to rule in his favour. However, it could be possible to apply some gentle pressure and that’s something I’m working towards.
5. We weren’t able to secure any creditor seats in the Karpeles trial – there was a lot of talking but the prosecutor didn’t want to accept requests from an individual creditor because it could be seen as special treatment. I still managed to get into the trial but it was difficult, and my interpreter didn’t get in on day 1. Getting seats in the future will also be problematic but I’m trying to arrange something.

Alleged MtGox bitcoin launderer caught – thoughts

Today’s big news is that Russian national Alexander Vinnik was arrested in Greece for alleged laundering of $4bn of money which included most of the lost MtGox bitcoins. The Greek police said that he ran a huge criminal enterprise and they claim that a specific website, believed to be the popular bitcoin exchange BTC-e, is a major part of this enterprise. The US authorities are seeking to extradite him.

The MtGox coins were sent to various exchanges for laundering, but most notably around half went to BTC-e. Some of those BTC-e coins were said to have been apparently stored directly by administrators of BTC-e, implicating the exchange in possible collusion.
Btc-e has now gone offline, and the fate of the money held in that exchange is unknown.

For more details of how this relates to MtGox, please see Kim Nilsson’s blog post on this. Kim has worked hard for years uncovering what happened to the coins but has had to keep much of it quiet until now to avoid disturbing any official investigation.

What does this tell us?

This confirms that the bulk of the missing bitcoins at MtGox were taken out of the exchange by an individual or small group over a period of time from 2011-2013, and that the money was subsequently laundered. The identity of the alleged launderer of that money is known, and there are strong alleged links to the BTC-e exchange. It appears that the launderer may actually be the operator of BTC-e. It now seems that the MtGox theft was in some way linked to a wider network of thefts from various exchanges – at least in how the money was laundered.

What this does not tell us

Vinnik is being accused of being the launderer, not the thief who took the money in the first place. The relationship between the launderer and the thief is at the moment unknown. This is the uncovering of a giant stepping-stone in the story but where that stone leads is still not quite certain.

Does this mean Karpeles did not steal the MtGox coins? Will it affect the trial?

Karpeles is on trial for embezzlement and for the large-scale trading of non-existent assets. He is not on trial for stealing the bulk of the MtGox bitcoins because there is not enough evidence for such a case. This new information should not affect the trial, and it’s almost certain that the prosecutors had this information before the start of the trial.

Assuming the laundering allegations are true, there is still an unknown link between Vinnik and MtGox. That link is the thief who supposedly compromised the hot wallet and arranged for the bitcoins to be drained over time.
It could have been Vinnik himself, it could have been Karpeles, or it could have been someone different. Perhaps Vinnik was a part of a small gang which hacked exchanges.
One big question which remains is how Karpeles could not have noticed the draining of such a massive amount of bicoins over a period of years until the exchange was almost bled dry, and also how security could have been so lax over a period of years.
I can’t imagine a situation where an exchange owner would avoid doing a quick check on exchange-held assets for a period of years, especially if that person was actively transferring them between bitcoins and USD on an industrial scale.

Might MtGox creditors see any money back if funds are seized?

It’s too early to tell based on limited information, but I think it’s pretty unlikely that we will see anything from this – and even if it did happen it would probably be years in the future.

Will there be any other implications?

I have my doubts that the $4 billion sum is a realistic figure, more likely it’s vastly inflated for impact using some carefully-picked method of measuring it. But my thoughts are that the US government could use this as the opening justification for a regulation-war with the crypto industry, especially if they manage to get hold of BTC-e’s internal records.
We could see US-led pushes for cryptocurrency regulation and prosecutions around the world, intended to help keep tabs on the flow of crypto money. It could end up being a pivotal point for the industry and for the users.

What next?

If Vinnik is extradited to the US, he’ll have the book thrown at him. A very, very heavy book thrown by the Statue of Liberty herself. The US does not like anyone who facilitates money laundering or anyone even remotely connected to such a thing. If the allegations are true then he’s likely to know the identity of the thief and other people in the network and we might see a plea deal happening which sheds more light on things.
We might learn about all sorts of related people and exchange hacks over the past few years. If someone is writing a movie script about MtGox, it’s now back to the drawing board to drink a few very long cups of tea and possibly change the focus of the story.


Thoughts go out to the BTC-e customers who must right now be panicking about their money.

Pre-trial update 裁判前の最新情報


The Karpeles trial will begin this coming week, but it will only last for two days in the first instance. There is likely to be a long break after that – perhaps for months.
It will be held on Tuesday 11th July at 10am JST at the Tokyo District Court, and then on Thursday 13th July at the same time.
We are not expecting anything from the realms of excitement to be visiting the courtroom this week. It will be a big media field day of course and many people will not manage to get through the door, but the trial itself is likely to consist of some standard reading out of charges and a lot of formalities. Formal advice from the court is that anyone with those glasses with eyeballs painted on the front should bring them along. If anybody makes a loud noise such as a badly-managed sneeze, expect to see 60 journalists removing their glasses in a startled manner.

As for events here at HQ in sunny Tokyo, a lot of activity has been going on in the past 1-2 weeks. I’ve been working almost full-time to organise various things. We now have legal support from one of the top 10 Japanese law firms, who are advising on aspects of the bankruptcy as well as other things. We’re getting the site translated into Japanese and fielding a lot of media enquiries. We tried hard to get reserved seats for creditors in the trial but it looks like this is not likely to be possible. There are a few other things we are looking into and hope to have more to report soon.

(Disclaimer – the opinions on will not necessarily be the same as those of the law firm.)

カルプレス被告の初公判がいよいよ今週に開かれるが、今回は二日だけの開廷となる。その後はしばらく沈黙が続く模様だー数ヶ月間にわたる可能性もあるだろう。 初公判は東京地方裁判所にて7月11日火曜日日本時間午前10時に開廷、続けて7月13日木曜日、同裁判所同時間にての開廷が予定されている。 今週の裁判が興奮の渦に巻き込まれることはないだろうと予測される。もちろんメディアにとっては大きな事件に違いなく、また限られた人数しかその門をくぐることはできないが、今回の裁判自体は起訴状朗読など、形式的なやりとりが主となるだろう。裁判所は、参加者に目玉が書かれた眼鏡を持参するよう推奨している。もしそこで誰かが大きないびきなどかけば、60人ものジャーナリストがいっせいに眼鏡を外して目を丸くするだろう。 一方、mtgoxprotest.com本部の近況についてだが、ここ1、2週間、様々な出来事が進行中だ。ほとんどフルタイムでそれぞれの仕事に注力している。日本の法律事務所からは法的サポートを得られることとなり、倒産方面やその他様々な助言を得ている。当サイトの日本語翻訳も進行中だ。多数メディアから寄せられる問い合わせにも精力的に応じている。また、今回の裁判で債権者として座席を確保しようと懸命に働きかけていたが、どうやら実現の可能性は低そうだ。この他にまだ進行中の案件がいくつかあるが、もうすぐ詳細を報告できるだろう。