Bitcoin had an amazing run in 2013 with its value hitting the $1,000 mark, but the cryptocurrency didn’t exactly get off to the greatest of starts this year. From the arrest of BitInstant CEO Charlie Shrem for money laundering and facilitating drug sales in Silk Road, to Apple yanking out the Blockchain Bitcoin wallet from the App Store, and Russia outlawing the cryptocurrency, it’s fair to say Bitcoin’s been having a rough ride of it lately.
But the most troubling news by far had to do with Mt.Gox, formerly the premiere Bitcoin exchange, which suddenly suspended withdrawals back in February. At first MtGox blamed this on a bug called “transaction malleability”, which meant people could trick the exchange into double-sending withdrawals. Later, it blamed the problem on security and technical issues, and even said that its decision to relocate to a new office caused the delays. Finally, the unthinkable happened and Mt.Gox shut down its website completely, filed for bankruptcy, leaving over a million users dumb-founded and enraged.
What happened? How can a company that deals with money lose almost $27 million in cash and Bitcoins worth close to $450 million in today’s value? Was Mt.Gox hacked? Was the money misplaced and forgotten? Or was it simply stolen by the exchanges’ owners?
Concerned employees raise questions at Mt.Gox
We may never know the real answer, but there are certainly clues. For example, over the weekend Reuters revealed in an interview with current and former Mt.Gox employees that the exchange’s money troubles apparently started long before the company filed for bankruptcy. The three unnamed sources explained that back in 2012, some employees were so concerned with the site’s business practices that they collared CEO Mark Karpeles, asking him pointedly if customers’ money was being used to cover company expenses. The employees were also concerned that the company was spending more than it was making, and they asked for proof that clients’ funds were protected and secured.
The employees apparently decided to question Karpeles after become suspicious of the way the company was being run. MtGox expenditures were reportedly very high, and included the cost of renting office space in a Tokyo high-rise which also housed offices for Hulu and Google, high-tech toys such as a robot and a 3D printer, and a souped-up, racing version of the Honda Civic imported from Britain for Karpeles.
A small group of employees secured a meeting with Karpeles, where they were assured that customers’ funds were secure and that there was nothing to worry about, but the employees were not given any evidence to back up Karpeles’ claims.
- Facing legal scrutiny
Mt.Gox is now under investigation by Japanese authorities, who have already taken evidence from the company’s employees to better understand what had happened to the money and bitcoins it was holding for its clients.
Karpeles is said to be the only person who had access to the company’s bank accounts and handled withdrawal requests manually. Authorities are also considering theft in their investigation.
In other news, Karpeles has refused to fly to the US to testify in a US court to protect domestic creditors. Gregory Greene and Joseph Lack, part of a class action lawsuit, accuse Mt.Gox of massive fraud and the theft of Bitcoin and currency worth hundreds of millions of dollars. Karpeles refused to fly to the US but instead stated that he would be willing to fly to Taiwan where he can be questioned by lawyers in person or via video call.
Greene and Lack said that this unacceptable, calling it “an unjustifiable misuse of judicial resources,” and even offered to pay for all of Karpeles’ travel expenses just to get him stateside, but even then their offer was turned down.