The goxing never ends. Mark Karpeles, the former CEO of once the biggest and only crypto-exchange, is going around to gain support for civil rehabilitation of the now bankrupt MT Gox.
“Japanese bankruptcy law has a particularly nasty outcome here, and I want to address this up front. As creditors claims were registered, those claims were registered in the valuation of Japanese Yen on the bankruptcy date…
This means that the claims can be paid back in full, and there will still be over 160,000 bitcoin and bitcoin cash in assets in the Gox estate… those assets are distributed to shareholders as part of the liquidation,” he says.
That being, Karpeles himself. “I don’t want this billion dollars. From day one I never expected to receive anything from this bankruptcy.
The fact that today this is a possibility is an aberration and I believe it is my responsibility to make sure it doesn’t happen.
One of the ways to do this would be civil rehabilitation, and as it seems most creditors agree with this, I am doing my best to help make it happen,” he says.
One could easily say why does it matter. He could just re-distribute the coins himself once they are given to him. But, apparently, that’s where the goxing might continue.
“Payments to shareholders in Bitcoin are unheard of, and are probably not an option since taxes on payments to shareholders have to be calculated, which means whatever is being paid need to have a stable value in JPY,” he says.
Which means if the exchange does not return to civil rehabilitation, the MT Gox trustee will sell some 165,000 bitcoins and 165,000 bitcoin cash.
Then, the trustee will apparently give Mark Karpeles billions of dollars from the sale proceeds for his excellent job of running the exchange to the ground and for crashing bitcoin at least three times, with a potential fourth just this winter.
Presumably Karpeles could just buy bitcoins with all that fiat money and then proportionally distribute it to everyone. But as any trader knows selling huge amounts in a very short time-frame, then buying huge amounts in a very short time-frame, means you’ve lost huge amounts.
Which makes this case very curious and a typical instance where the law has effectively lost its head. MT Gox held on trust around 1 million bitcoins. Some 800,000 of it was allegedly stolen.
The remaining 200,000 was then valued at the bankruptcy price of around $400. That translates to around half a billion for all of the one million coins.
The trustee recently sold 35,000 bitcoins and bitcoin cash amounting to half a billion. As such, the court in bankruptcy is now saying everyone is paid back (once this half a billion is actually sent).
But there’s still 165,000 bitcoins left, translating to around $1.1 billion at current prices, plus bitcoin cash with another $100 million.
However, everyone has been paid back in this fictitious Kafkaesque legaleze world. So who gets this remaining circa $1.5 billion?
Well, in bankruptcy it is Karpeles because he has been such a good boy. A preposterous suggestion of course, but what do you expect of the exchange that is guilty of every single bitcoin crash.
“I am innocent of all charges,” Mark Karpeles said at his trial in June 2017. He also said something quite interesting:
“After taking over the business, I realized that Mt. Gox faced the problem of managing a debt portfolio. If the debt portfolio was not properly managed, there was a possibility that Mt. Gox would go bankrupt and cause serious harm to its customers.”
We asked if this suggests the theory MT Gox had 400k missing all along is true and whether MT Gox was operating on fractional reserves all-along, but have not received an answer at the time of writing.
When Mark Karpeles took over the exchange, it was apparently some 80,000 short, or 400,000, with the number somewhat unclear but that there was a short-fall of coins seems settled at this point.
“I’m afraid I cannot respond to this as it involves ongoing litigation and/or investigations,” Mark Karpeles says when asked about that short-fall.
He can keep his lips sealed while going on a charm offensive, but what happened at MT Gox appears somewhat clear at this stage.
Of course, there were some hacks, there were some thefts, but the exchange was seemingly doomed from the beginning as it was probably operating on fractional reserves.
This was during a time when bitcoin was almost unheard of, but an article on Forbes in 2011 led to an explosion of interest, Karpeles says.
He was therefore probably trying to scale the exchange, hire new employees and so on, while now facing a big problem.
That bitcoin short-fall had just increased 10x, or more, in fiat value as bitcoin’s price had increased 10x. He turns on Willy the bot to try and “perform the obligation exchanges,” as he calls it.
The problem is price rises 10x again, or more, some 30x in March 2013. This all while people flood to the exchange opening new accounts to get some bitcoins.
Then a DDoS suddenly happens, price falls, very convenient. When price rose in 2011 a hack that apparently was not a hack at all happened, with price falling again.
Yet bitcoin shrugged it off and rose again to $1,000 in November 2013. MT Gox at this point effectively stops working. MT Gox databases are leaked showing they’re a complete mash-potatoe and that there was an apparent short-fall of some 400,000 bitcoins all-along.
The above is a theory, of course, our preferred theory, with some evidence mentioned above to back it. And if even a fraction of it is true, then the court is seemingly thinking of rewarding what might be the perpetrator with $1.3 billion.
One can think he was simply trying to do his best of a bad situation, a victim of circumstances even perhaps. For although trouble gox was and continues to be, it did stand up to provide a market when few, if anyone else, did.
Yet we would celebrate the day when this story is sent to the history books. Because four years of bankruptcy is far too much. And the entire court process is starting to sound like a bad joke, which reflects on the wider legal system and how artificial it can be.
The Japanese court and the trustee should just return the coins to their rightful owners who entrusted Gox to hold them on trust. And so close this chapter and send it to the archive for historians because all this goxing is becoming far too boring and the Japanese court is becoming too much of a clown show.