Bankrupt Mt. Gox Facing Class-Action Suit Over Bitcoin Disappearance
The mountain of trouble that has been piling up for Mt. Gox just got even larger.
Once the largest Bitcoin exchange in the world, Mt. Gox shut its digital doors and later filed for bankruptcy this week after losing hundreds of millions of dollars worth of its customers’ bitcoins. Now the Japan-based company and its French CEO, Mark Karpeles, have been hit with a class-action lawsuit.
Chicago-based law firm Edelson PC filed the suit Thursday in a federal court in Illinois on behalf of one named plaintiff, Gregory Greene, and all other U.S. residents affected by the collapse of Mt. Gox. Greene is said to have lost a trove of bitcoins worth $25,000.
“This catastrophic loss has not only revealed the instability of a burgeoning new industry,” the complaint against Mt. Gox reads, “it has also uncovered a massive scheme to defraud millions of consumers into providing a private company with real, paper money in exchange for virtual currency.”
Jay Edelson, a managing partner at Edelson PC, said that proving fraud will be key because Mt. Gox’s bankruptcy protection will not shield it should the court find that the company defrauded customers.
“The key thing in order for [a virtual currency to work] is that it’s secure,” Edelson told Mashable. “If people can go in and hack it, it’s nothing — then, it’s just Monopoly money.”
Edelson called Mt. Gox’s accounting practices “as unsophisticated as they get” and said the company had been vulnerable to hackers for the past year without realizing it.
“Not only was [Mt. Gox] not secure, but they weren’t minding the store at all,” says Edelson. “If people had understood that they weren’t actually minding the store, they wouldn’t have entrusted Mt. Gox with their money.”
Greene declined an interview request for this story through a public relations company representing the law firm. Though Greene would not comment, there is no shortage of stories floating around the Internet about people who lost their fortunes through Mt. Gox.
“They clearly were operating on the intention of making money and completely neglecting the fact that their actions are costing gigantic setbacks in a lot of peoples’ lives,” one former Mt. Gox client told Mashable in an email.
The person, a late 20s Miami resident who asked to remain anonymous, said he lost more than 1,100 bitcoins (worth more than $600,000 at current exchange rates) in the Mt. Gox collapse. He called the loss “absolutely devastating” both as a technology entrepreneur and as someone who was hoping to marry his girlfriend this year. The man provided the following screenshot of his Mt. Gox dashboard as proof of his loss.
“I didn’t lose my family’s house or anything like that,” he said, “however, it is a gut-wrenching loss that has definitely set us back in many ways, when it comes to budgeting, getting married, buying a home, etc.”
Edelson’s firm believes the court has jurisdiction over Mt. Gox because the company conducted business in the U.S. and the alleged wrongful acts, involving significant financial damage, affected a large number of people in the U.S.
The court assigned the case to a judge and issued a summons to Mt. Gox and Karpeles on Friday.
The full complaint against Mt. Gox is embedded below.