US Mt Gox lawsuits stalled by bankruptcy

Dormant bitcoin exchange files for protection in Texas court as plaintiffs allege fraud

Tags: JapanMt Gox (mtgox.com)USA
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US Mt Gox lawsuits stalled by bankruptcy Mt Gox went offline last month following a cyber attack that exploited a vulnerability in bitcoin’s operational software. (Getty Images)
By  Stephen McBride Published  March 11, 2014

A Texas judge granted bankruptcy protection to out-of-commission bitcoin exchange Mt Gox yesterday, stalling attempts by traders to take legal action against the Tokyo-based company, Reuters reported.

Mt Gox went offline last month following a cyber attack that exploited a vulnerability in bitcoin's operational software. The attackers cloned transactions, which led to the loss of around 750,000 bitcoins.

A Chicago-based class-action lawsuit was about to ask for Mt Gox's US servers to be seized and a trust to be set up around the company's assets when the bankruptcy protection was granted, effectively shielding Mt Gox's assets until April. The plaintiffs allege fraudulent behaviour on the part of Mt Gox and its CEO Mark Karpeles.

"This case involves a massive fraud," said Steven Woodrow, an attorney leading the class action, told Dallas Judge Harlin Hale, who approved the bankruptcy filing.

"They claim incredibly that they will preserve assets and protect assets by entrusting the servers and other property to Mr. Karpeles. Respectfully, your honour, that is the definition of the fox guarding the henhouse."

Mt Gox has filed papers with the Dallas court that claim the loss of bitcoins was caused by the software flaw, but plaintiffs in a separate Seattle-based lawsuit raised concerns over the movement of "hundreds of millions of dollars in bitcoins" by Karpeles.

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