Bitcoin Exchange MtGox Receives US Bankruptcy Protection to Halt Legal Actions

Legal action against Japan-based MtGox was temporarily halted in the US as the collapsed bitcoin exchange received bankruptcy protection from a Texas judge.

The company is facing a proposed class action in Chicago and another case in Seattle for breach of contract. It filed for Chapter 15 protection in the US late on 9 March, asking the bankruptcy court to recognise its bankruptcy in Japan and protect its US assets.

MtGox's attorneys said it may not be able to withstand the legal actions without bankruptcy protection.

Subsequently, Judge Harlin Hale in Dallas granted temporary bankruptcy protection to MtGox, which would protect the company's US assets until April. MtGox will return to court on 1 April to extend the protections and demand a complete stay on all court proceedings.

However Judge Hale's order does not apply to MtGox CEO Mark Karpeles, who was named in the proposed class action.

Legal Proceedings

The company filed for bankruptcy protection in Japan last month, claiming it had lost 850,000 bitcoins in a sustained cyber attack. The stolen coins represent about 7% of all bitcoins in circulation.

The exchange's collapse prompted legal actions against the company in many countries including the US and the UK.

The proposed class action in Chicago was seeking to get a federal judge to freeze the company's operations in the US and to set up a trust over its assets.

In Seattle, Coinlab Inc sued MtGox for breaching a contract last year, and is seeking damages of $75m (£45m, €54m). Karpeles was scheduled to be deposed later this month in the Seattle lawsuit.

UK-based law firm Selachii is also preparing for a class action in London against the collapsed bitcoin exchange and its owners.

Responses

The attorney leading the class action in Chicago noted that MtGox is deceiving customers with the bankruptcy trick, Reuters reported.

"This case involves a massive fraud," the news agency quoted Steven Woodrow, an attorney leading the class action, as saying to Hale.

"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."

Meanwhile, an attorney for Coinlab said the latest move by Karpeles appeared to be fraudulent.

"We don't have proof yet but we do have concerns about the movement of hundreds of millions of dollars in bitcoins over the weekend, moved by Mr Karpeles," said Jane Pearson, an attorney with Foster Pepper.

MtGox's attorney, David Parham, said there was no fraud in the legal proceedings adding that Karpeles and MtGox were complying with the Japanese bankruptcy proceeding.