Controversy over GoxCoins Proposal for Restructuring MtGox

There are community suspicions that MtGox may have been behind a restructuring proposal which has seemingly originated from a 3rd party source, in what could be an astroturf campaign to gain acceptance.

We’ve been contacted by multiple creditors who are worried about the supposedly neutral proposal to continue MtGox trading, authored by a group called Humint.

This post on Reddit points to the document:
http://www.reddit.com/r/Bitcoin/comments/1zj1rm/humintis_proposal_for_mtgox_recovery/
The comments to this show the immediate community reaction. Many creditors feel that this document is suspicious and is not in their interests.

The plan would effectively mean that people’s bitcoins would be converted to another tradable currency, “GoxCoins”, which would have a much more ephemeral value. If stolen bitcoins were officially recovered, owners of the GoxCoins would share their value via dividends. This is an interesting idea but our concerns about it are very considerable:

  • The bitcoin debt of MtGox would be magically wiped clean, allowing the company off the hook to continue trading, and resetting everyone’s bitcoin balance to 0. The responsibility for the bitcoin loss would be shifted to the creditors.
  • Bitcoin creditors would lose out on their fair share of the fiat cash reserves currently left in the company, so it’s likely they would end up losing even more money. This plan seems to strongly favour fiat holders, but the document spins it like it’s a good thing for coin holders.
  • Whoever is behind the missing bitcoins, be it someone/people external or internal to the company, would be able to become the legal owner of much of their value, because they could buy up the GoxCoins at a very low rate before allowing the bitcoins to be found. This could be used as a handy method of laundering.
  • If someone on the inside of MtGox had an idea of if/when they might be found (which clearly they would more than the creditors, even if there was no foul play) they could ‘play’ the creditors. Those with access to the records and the most knowledge of what happened, eg Karpeles, could end up the big winners.

Our opinion is that creditors deserve to fairly share the value of any recovery of coins. By trading their rights away in the form of GoxCoins against people who potentially have more knowledge of their value, they could be at a serious disadvantage.

So why the suspicion of this new plan?

This “GoxCoins” controversy is reminiscent of the furore over the famous restructuring document leaked 2 weeks ago by TwoBitIdiot. That document was suspected to have been secretly authored by Mandalah, a consulting business closely tied with MtGox and Tibanne who were said to be tightly integrated into the running of the company. One source told us:

“Mandalah has its tentacles really really deep inside that company. And they pretty much run the show.”

Despite the sinister tone of this quote, Mandalah were said to have come up with some good ideas and plans to improve the customer experience and transparency of MtGox – something which was badly needed.

This article on CoinDesk exposes links between that original document and Mandalah:

http://www.coindesk.com/leaked-mt-gox-document-linked-consulting-firm-mandalah/

This new GoxCoin document appears to have similar roots. An internet “whois” query on the Humint.is website domain shows that it is in fact owned by Mandalah. Michael Keferl (of Mandalah) who worked closely with Karpeles is listed as one of the authors of the GoxCoin document, though there is no disclosure of his links with MtGox.

One creditor summed up his concerns:

“I think it basically boils down to an attempt by Mark to cheat himself out of Bitcoin liabilities.”

One insider who was formerly close to MtGox has been investigating developments with growing alarm. He told us that he has been hit by multiple legal threats from Karpeles to silence him.
Here he gives his theory on the situation:

“Now the question is: Why would Mandalah, a contractor that is close to Tibanne, make a petition to Mark Karpeles?

A much more likely case: This was an idea by Tibanne in order to rid itself of the BTC debt. Mandalah was to execute the plan in order to make it look like the community is making the proposal. Mark can then accept the proposal under the pretense that this is what the community wanted. This is the working theory in ##mtgox-chat on Freenode IRC.

This would mean that:

(1) Tibanne wants to create its own alternate currency to get rid of its BTC liabilities easily

(2) They ordered Mandalah to create a website for it and do publicity so it looks like it is a community effort

(3) Tibanne effectively wants to make its users work for getting their money back, by advertising a relaunched MtGox website and GoxCoin.

It would have been perfect if Tibanne had its way: Mark simply owns some of these Goxcoins, and uses them to pool the debt and give people liquidity. Then Mark buys it all up for pennies. Next, a bunch of BTC are magially found and/or recovered. Because Mark holds a large amount of these Goxcoin, the discovery of bitcoins means that he is able to reap huge profits.

While writing this, the whois for http://humint.is was changed. Mandalah/Tibanne were obviously not pleased we found out about their little scheme. They were lurking in the ##mtgox-chat room while the investigation was taking place.

By the time you read this, the page contents may already have been removed or altered further.”

 

Update:  A signatory of the document Adam B Levine claims to have come up with the plan and has put a lot of time into responding to the comments on the Reddit page. However, seemingly users remain unconvinced. Michael Keferl has been removed from the signatories list. CoinSearcher, who was the very first MtGox protester and who briefly came to Tokyo from Australia a month ago to protest, worries that if there was any coin seizure by the authorities and gag order, this method could be used by an insider to gain control of those coins once they were returned. His request for a definitive statement from all those involved in the document that they know of no seizure has gone unanswered.

Monday 3rd March 2014

 

 

P1030244-e1393826284525Been to MtGox building for TV & press interviews.

The lights are on on the Tibanne/MtGox floors.

 
“Inspector Gadget”-style guard
still posted outside the office.

Tried to phone the new customer helpline 4 times
and was treated to a relaxing selection of ambient lift music. No answer.

The helpline is located inside the building.

on Friday’s bankruptcy protection announcement.

Many people assume MtGox have filed for bankruptcy. They have done the opposite, they filed for bankruptcy protection.

They are applying for Civil Rehabilitation, this is a process whereby Karpeles proposes to keep himself in charge of the company, along with its records and customer funds, and keep the company running. It would also protect the company from lawsuits seeking reimbursement of funds.

To have Karpeles remain in charge of customer deposits and plan the process of any returned funds is a very frightening prospect. Offhand I can think of approximately 7 billion other people in the world who I would prefer to be doing it.

In my view, this process is a sham as it’s hard to imagine how the company could keep on running. I see it as another delaying tactic. Any plan he comes up with would require a majority vote from creditors, which is unlikely to happen. It is possible to file for a motion to discontinue the civil rehabilitation which is what we are seeking to do.

I would like to see Karpeles removed from any further control of the company and customer deposits and for the company to enter formal bankruptcy, meaning a court-appointed professional would take over and redistribute any possible funds to its creditors.

Friday 28th February 2014

TV and press still hanging around outside the empty MtGox offices.

Protest started late at 4pm and consisted of a series of interviews until 6pm.

 

18:00:  Mark Karpeles makes a statement to the press in Tokyo explaining the company has filed for bankruptcy protection. Finally an admission of insolvency and loss of all the bitcoins. This is what everyone has been waiting for since the website went down on Tuesday, and what the protest has been trying to achieve since the start.

It brings a welcome end to the false hopes Karpeles has been feeding his customers on the MtGox website this week, and an end to the protest in its current form.

18:45: The MtGox protest is packed up for the last time outside the empty former MtGox office. I do an exit interview with Asahi TV, and head home to spend the next couple of hours giving out final statements. Despite the sad ending in relation to customers’ deposits, I feel some satisfaction that the protest has outlived the company. This is not the end from us though, please see updates. We will be continuing.

The future for mtgoxprotest.com

The protest outside the office is over but we will be continuing!

Our aim is to shed new light on what has been going on at the company, fight for the prosecution of those responsible for crimes there, report news, and help gox victims with information and updates on claiming their funds.

Coming soon will be a series of revelations on what has been going on inside MtGox, as well as details of events during the protest which haven’t been made public.

Update 3 March 01:00: As I’ve had criticism for not updating regularly and saying “Coming soon..” I will explain the situation. I am in Tokyo on the opposite side of the world from my home where I’ve been for 3 weeks now at my own expense (but I’ve had some donations, thanks!), working almost every waking hour to shed light on the MtGox situation and ensure these people don’t get away with losing everyone’s money without an explanation. If Aaron and myself hadn’t been doing that they might still be operating the site and taking more people’s deposits. I spend most of my day answering emails from concerned people, interviewing with the press, trying to initiate legal action to ensure things are investigated properly and the bankruptcy procedure is not opaque, and trying to source new information. As a result I am not able to update the blog as often as I would like to – but I am doing my best.

Thursday 27th February 2014

Sorry for the lack of timely updates in the past day. Things have been very busy.

AM: There are press outside the Cerulean tower waiting for something to happen, there are reports they are moving to the original MtGox office.

I will be arriving at the original MtGox office at around 3pm.

12:30: It appears that there is no chance of an MtGox bailout, meaning customers have little chance of seeing their funds again. The bailout document on the net was apparently written by Karpeles himself. From Two-Bit Idiot:

Due to some angry Gox depositors, I’ve been advised to disclose that Karpeles was overstating the fact that he had “lined up” investors. The truth is, in a move of desperation, Mark asked several investors for a bailout, all of which seemed to have immediately notified the authorities once they learned the extent of the fraud, negligence or incompetence at Mt. Gox.

http://two-bit-idiot.tumblr.com/post/77967162725/breaking-full-mt-gox-story-coming

Karpeles now is clearly in complete desperation, as are his customers. I think we’ll find him hiding inside a drainpipe, somewhere near a Starbucks outlet. What we’re waiting for now is a statement on the MtGox website saying it’s all over but don’t hold your breath for that. Even if/when he’s in jail I expect him to still be sending out messages about technical problems.

Stay tuned for more updates today.

Follow me on Twitter @The_K_meister for instant updates.

*****  16:00: We’ve been given some very interesting information about what has been going on behind the scenes at the company. Stay tuned for updates.

18:00: Neighbours of Karpeles say his family left his apartment a month ago

 

Wednesday 26th February 2014

japan-press1-e1398927599938

Today the story hit the Japanese media like a bomb. There were large numbers of TV, newspaper and web journalists staking out the original MtGox office in wait for us. I arrived late at 3pm and after pulling out my protest sign I was soon overwhelmed by the media.

Nobody from MtGox or Tibanne is reported to have been sighted at the office but that doesn’t necessarily mean that nobody is there.

The Japanese government made a statement saying that the police, the Finance Ministry and other agencies are now investigating MtGox.

A conversation purported to be with Karpeles has appeared on the net, where he insists he is at home. A linked photo also shows a Cerulean Tower keycard possibly put there for show. People have been to his home and reported that his mail has been backing up so it seems unlikely that he is really there.

A couple of disaffected MtGox customers arrived outside the Cerulean tower in the evening, followed by several TV and print journalists.

Tuesday 25th February 2014

Today could be the last day of the MtGox saga.

Trading on MtGox has stopped.

Coinbase has posted an enigmatic statement from many of the world’s major exchanges regarding the insolvency of MtGox. It mentions:

“This tragic violation of the trust of users of Mt.Gox”

but without explaining precisely what it’s referring to. This statement has since been edited to remove the word ‘insolvency’. It appears that they are pre-empting some formal notification of what could be the collapse of MtGox and loss of customer funds.

http://blog.coinbase.com/post/77766809700/joint-statement-regarding-mtgox

An article has appeared on the internet claiming MtGox have lost 744,408 bitcoins due to theft and only have 2,000 left. There is currently no reason to believe that the claims in this document are authentic, but the timing with the Coinbase statement is very interesting.

http://www.scribd.com/doc/209050732/MtGox-Situation-Crisis-Strategy-Draft

 

13:20: Currently the MtGox website is only loading a blank page.

15:45:  Karpeles is not at his apartment and his mail has been backing up. It appears that he may be in hiding. Has he skipped the country?

 

Watch here for further updates.

On ending of the protest by police on Friday 21st Feb

Screen-Shot-2014-02-24-at-21.59.09

On Friday 21st February at 5:15 pm the police ended the protest. They were not apparently called by Tibanne or MtGox but by another tenant of the building who said we were “scaring” him.

We were 2 people sitting in the street on miniature seats with laptops and protest signs.

However we also had 8 visitors at the time of the police arriving and this may have seemed frightening to some people. Many people in Japan find a group of foreigners intimidating and most of the group were non-Japanese. We were all standing well away from the building and its street entrance, actually outside the neighbouring building, so this was a little unfair. We were not carrying any protest signs or engaged in any protest activities at the time other than chatting to visitors.

So what next?

The protest will be continuing, but in order to avoid problems with the police we will need to make some changes. We are looking into our legal options and we are considering what other arrangements we might make. If you plan to visit us please check here at mtgoxprotest.com first to make sure you are going to the correct place. If you wish to arrange anything you can email kolin.burges@gmail.com