Mt. Gox

The name Mt. Gox is short for “Magic: The Gathering Online Exchange.” American programmer Jed McCaleb registered the mtgox.com domain in 2007 intending to build a trading site for the collectible card game Magic: The Gathering, but never followed through; in late 2010, he repurposed the domain as a bitcoin exchange providing a single place to connect bitcoin buyers and sellers.⁠[1][2][2][2]

The site soon began receiving wires for tens of thousands of dollars; finding himself in over his head and not wanting the legal hassle of running an exchange, McCaleb sold Mt. Gox in 2011 to Mark Karpelès, a French programmer living in Tokyo. According to a leaked Mt. Gox business plan, Karpelès owned 88% of the company and McCaleb 12%. Karpelès then rewrote the site’s back-end software and built it into the world’s most popular bitcoin exchange; Mt. Gox entrusted the operation of the exchange to its parent company, Tibanne Co., Ltd., and had no employees of its own.⁠[2][3][2][2][4]

In June 2011, Mt. Gox was hacked and attackers made off with the equivalent of $8.75 million, taking the site offline for several days. Unlike other bitcoin businesses of the time that folded after being hacked, Karpelès and Mt. Gox eventually made good on their obligations, earning a reputation for honesty in the bitcoin community.⁠[2][2][2][2]

In May 2013, the US Department of Homeland Security served a seizure warrant on the payment service Dwolla for the funds in Mt. Gox’s account, on the grounds that Mt. Gox had not registered in the United States as a money transmitting business; its US subsidiary Mutum Sigillum LLC had declared when opening a Wells Fargo account in May 2011 that it was “not engaged in money services.” About $2.9 million was seized from May 14, and a further $2.1 million was seized from Wells Fargo accounts on June 19, for a total of about $5 million; the next day Mt. Gox suspended US dollar withdrawals, which remained slow for a long time afterward.⁠[5][5][5][1][6][6][6]

The same year, Mt. Gox became embroiled in a $75 million lawsuit with its onetime partner CoinLab; in October 2013, it briefly lost its status as the world’s largest bitcoin exchange, falling behind two exchanges in China and Slovenia.⁠[1][1]

In February 2014, Mt. Gox halted bitcoin withdrawals, citing problems finalizing transactions due to “transaction malleability” in the Bitcoin protocol; other exchanges also paused withdrawals, and the Bitcoin Foundation said it was working on a solution. The bitcoin price on Mt. Gox fell from $950 earlier in the month to about $558. Kolin Burges, a user who had flown from London to Tokyo, and others protested with signs outside Mt. Gox’s headquarters, asking whether the company was still solvent.⁠[3][3][3][7][7][7]

Mt. Gox said that at the start of February 2014, illegal access through the abuse of a bug in the bitcoin system had increased the number of incomplete bitcoin transfers; an internal investigation found that a large amount of bitcoin had disappeared, about 750,000 belonging to users and about 100,000 to the company; on February 24 it also found a discrepancy of about 2.8 billion yen between the cash held at financial institutions and the amount deposited by users. Judging that it could not continue operating normally, the company closed its website at noon Japan time on February 25.⁠[8][8][8][8][8]

On February 28, 2014, MtGox Co., Ltd. applied to the Tokyo District Court to commence civil rehabilitation proceedings, and the application was accepted the same day; the court also issued a preservative order prohibiting the payment of debts and the disposal of assets, a comprehensive prohibition of forced attachment, and a supervisory order, appointing attorney Nobuaki Kobayashi as supervisor and investigator. At the time of the application, the company’s total assets were about 3.84 billion yen and its current liabilities about 6.50 billion yen. Karpelès bowed and apologized at a news conference, blaming “a weakness in our system”; the company then had about 127,000 creditors, just over 1,000 of them in Japan.⁠[8][8][8][8][9][9][9]

Mt. Gox also filed for bankruptcy protection in the United States. A US court demanded that Karpelès attend a hearing in Washington, and the US Treasury’s Financial Crimes Enforcement Network also asked him to travel to the United States to answer questions; through his lawyers, he declined to appear.⁠[10][10][10]

On March 7, 2014, while rescanning old-format wallets, Mt. Gox confirmed that a wallet used before June 2011 still held about 200,000 (199,999.99) bitcoins; it promptly reported this to its counsel, the court, and the supervisor, and moved the coins to offline wallets on March 14–15. Together with about 2,000 bitcoins it already knew of, the company held about 202,000 bitcoins; on that basis, the number of bitcoins that had disappeared was estimated at about 650,000, with the cause and exact number still under investigation.⁠[11][11][11][11]

Because the factual investigation would take more time, there was no prospect of restarting the business, and no sponsor had been selected, making a rehabilitation plan difficult to draft, the Tokyo District Court dismissed the civil rehabilitation application on April 16, 2014, and at the same time issued an order for provisional administration, appointing Nobuaki Kobayashi as provisional administrator; on April 24, the court ordered the commencement of bankruptcy proceedings for Mt. Gox and appointed Kobayashi as bankruptcy trustee.⁠[4][12][12][4][4]

Mt. Gox Civil Rehabilitation Trustee: Official website: https://www.mtgox.com/ (opens in a new window).⁠[13]