Where Are Our Bitcoins – Is Mark Karpeles guilty of massive fraud?

It barely needs to be mentioned that the idea of MtGox suddenly finding 200,000 missing bitcoins is ludicrous. I have strong faith in the incompetence of Mark Karpeles but I don’t believe for a second that he was unaware of these coins. There are few people in the history of the world who could claim to have lost all their assets yet completely forgotten about $150 million they had lying around.

I’ve been asked countless times in interviews whether I believe MtGox deliberately defrauded their customers. I do believe that they perpetrated fraud against their customers, but I didn’t necessarily believe that they were behind the missing bitcoins. Now it’s getting harder and harder to believe they were not involved in some way.

If 200,000 bitcoins were found, this means there could have been no record of them being taken in the first place. If this is the case, why would Karpeles have claimed/believed they were stolen? Let’s just check what MtGox actually claimed:

“We found that a large amount of bitcoins had disappeared […] We believe that there is a high probability that these bitcoins were stolen”

That’s a nice way of implying that they were stolen but in a way they can retract later if need be.

Recently a technical analysis by ETH Zurich University in Switzerland has showed that no more than 386 bitcoins could possibly have been stolen through any transaction malleability attack at MtGox, and it was probably far less. If that is the case then Karpeles would certainly know this because he has all the records. Why has he been deliberately spreading the belief that they were stolen via malleability problems?

Why won’t Karpeles explain where the “missing” coins have gone to or which wallets they were stored in? If they were taken, the evidence will all be there both on the public blockchain and internally on MtGox’s computers. All we need are the bitcoin wallet Ids and we can see for ourselves where they were transferred to. I can’t think of any possible innocent reason to conceal this information. In fact, Karpeles is required by law to disclose it to the creditors but he will not do so. Similarly, he won’t explain where the missing $28 million of customer cash deposits has gone.

If Karpeles suddenly found 200,000 bitcoins in a secure offline wallet, why would he immediately upload them into a hot wallet on the MtGox online system which he knew has been breached by hackers in multiple ways? This system was still connected to the internet at the time, and he left them sitting in there for a week! MtGox later claimed in a court statement that they did it for “security purposes”. MtGox also claimed in court documents that the last remaining 2,000 bitcoins was left sitting in the online hot wallet in March. If he believed the other coins had been hacked why on earth would he do this?

This is all very reminiscent of the pre – bankruptcy protection times when we couldn’t get our money out. We were all left to guess what was going on. We were served up with a menu of misdirection, half-truths, withholding of information, and probably all-out lies. I have to think that there is still quite some cover up going on here. I think it’s likely the coins were not stolen from outside the company, at least not during any recent hacks. It’s possible the bitcoins have been missing for years, and the company could have been fraudulently taking people’s deposits all that time and trying to cover it up. If this was the case it would have been a classic ponzi scheme.

On Thursday 27th March Mtgoxrecovery.com published 3 court documents in their case against MtGox. They are doing a great job of forcing the company to account for their actions and ensuring they don’t get away with cheating the system. It is their belief that Karpeles would not have announced the finding of the 200,000 bitcoins on 20th March if he had not been forced to by mtgoxrecovery.com reporting it to the court on 11th March. (And I know that other parties have been reporting it to the court too).

The monthly civil rehabilitation report which MtGox filed on March 10th does not mention the found 200,000 bitcoins. This bitcoin “discovery” is by far the most important event since the start of the civil rehabilitation. Why would this have been concealed from the monthly report?

In the court documents, mtgoxrecovery.com highlight several inconsistencies in the official court statements of MtGox, some of which are covered in this blog post. It’s quite shocking that they are submitting what clearly seems to be unfactual information to the court. Their explanations for their suspicious actions do not make sense. In my view they are blatantly trying to mislead the court and their creditors, and they are making a mockery of the civil rehabilitation process.

Some quotes from Mtgoxrecovery.com in the court documents:

“[MtGox] has been conducting transactions that raise a danger of hiding most of its assets”

It is becoming increasingly questionable whether any ‘loss of bitcoins’ actually occurred”.

We cannot help but coinsider that [MtGox] had hidden such enormous assets of approximately 200,000 bitcoins at the time of filing for commencement of civil rehabilitation proceedings”

As is well known, Mr Karpeles […] lacks credibility”

MtGox’s real plan?

The civil rehabilitation procedure is MtGox’s attempt to keep the company running in the long term, it is not any form of bankruptcy procedure. It protects them from lawsuits and bankruptcy. They have made it clear that their plan is to reopen the exchange. The question is how? I have no doubt that their hope is to use our bitcoins as part of this.

In the application for Civil Rehabilitation proceedings, they claimed the value of the lost bitcoins was 13,472 yen ($130) per bitcoin! Clearly untrue. They used the crazy fake trading price on their exchange at the time it closed down. If they were able to get away with only paying us back at a rate of $130 per bitcoin whilst keeping their company running, they might be able to use the ‘found’ 200,000 bitcoins to not only ‘fully’ pay us back, but they could end up left over with a huge 9-figure dollar profit at the end of it – depending on the price of the bitcoins when cashed in.

Mtgoxrecovery.com are pushing to end the civil rehabilitation, which would be a good thing for all of us. Karpeles should not be allowed to continue running the company and continue controlling our assets in mysterious, unexplained ways. Hopefully the court will do the right thing and we will see the procedure struck off. There will be a hearing on May 9 to decide this.

If it’s allowed to continue, we will still have the ability to vote against whatever the plan might be but it could add several months onto the time we wait to receive any money back.

I will be putting an article up later this week which shows how you can help to stop this from going ahead.

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