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As expected (and predicted), the bankruptcy judge in Dallas, Texas granted Mt. Gox’s request for an order of “recognition” that the debtor’s Tokyo insolvency action was a “foreign main proceeding.” She will also allow Mt. Gox’s bankruptcy trustee, Nobuaki Kobayahsi, to act as the “foreign representative” of the debtor in connection with whatever relief it might seek in the Chapter 15 case.
Continue Reading Mt. Gox’s Chapter 15 Case Is Officially Underway

Yesterday, the Securities and Exchange Commission (“SEC”) announced that Erik Voorhees (“Voorhees”), co-owner of Bitcoin-related websites SatoshiDICE and FeedZeBirds, has agreed to pay approximately $50,000 to settle allegations regarding the unregistered sale of securities.    
Continue Reading SEC CHARGES OWNER OF TWO BITCOIN-RELATED WEBSITES WITH OFFERING UNREGISTERED SECURITIES

On May 21, the bankruptcy trustee for Mt. Gox advised depositors that the bankruptcy case in Tokyo was proceeding.  The information contained in the email was limited in scope, guarded and of little use in understanding the trustee’s view of how the bankruptcy ultimately may resolve. 
Continue Reading Mt. Gox Trustee Communicates with the Exchange’s Depositors

On April 28, in the wake of Mt. Gox’s Japanese rehabilitation proceeding having been converted to a liquidation proceeding, a proposal for selling and restarting the Mt. Gox exchange was submitted in the pending class action litigation in Illinois. The proposal was accepted by plaintiffs in the class action litigation before a class had even been certified.
Continue Reading Proposal Made for Restarting the Mt. Gox Exchange

As predicted, the court in Tokyo has ruled that Mt. Gox will be liquidated. An “Announcement of Commencement of Bankruptcy Proceedings” was posted overnight April 24 by the Japanese bankruptcy trustee Nobuaki Kobayashi on the Mt. Gox site to confirm that the company is officially in bankruptcy (liquidation) in Japan.  The Announcement also includes a “Frequently Asked Questions” section to give a very high level overview of the liquidation process.
Continue Reading Mt. Gox to be Liquidated

On April 16, Mt. Gox’s civil rehabilitation proceeding in Tokyo (something similar to a U.S. Chapter 11) was dismissed and the initial stages of a bankruptcy liquidation under Japanese law began. An Interim Administrator (Nobuaki Kobaysahi) has been named until the Japanese court decides whether the liquidation will begin and whether a different Administrator replaces the Interim Administrator. How this situation came to be is an interesting tale.
Continue Reading Mt. Gox Heads Toward Liquidation

On February 28, 2014, Mt. Gox, the oldest Bitcoin exchange, filed for bankruptcy reorganization under Japanese law, toppling from its place in the Bitcoin community to insolvency. This filing confirmed rumors of financial troubles spawned by Mt. Gox’s sudden suspension of trading on February 25 and focused increased legal scrutiny on Mt. Gox’s business practices.

Mt. Gox’s downward legal spiral began in May 2013, when the Department of Homeland Security seized $5.5 million in funds held in its U.S. subsidiary’s processing accounts for failure to register as a U.S. Federal Money Services Business. Until then, despite having experienced other losses due to security breaches and other technical failures, Mt. Gox had enjoyed a rapid rise in popularity to become the largest Bitcoin exchange in the world, at one point handling as many as 80% of Bitcoin trades worldwide. The negative press and loss of consumer confidence from the government seizure of Mt. Gox’s funds, combined with the rise of several strong market competitors cut down Mt. Gox’s market share significantly. However, despite its challenges, Mt. Gox continued to conduct approximately 34% of all Bitcoin exchange transactions in early February 2014.
Continue Reading Mt. Gox’s Legal Problems Lead to Bankruptcy and Increased Scrutiny

Late last month, New York Department of Financial Services (“DFS”) Superintendent Benjamin Lawsky (“Lawsky”) (accompanied by DFS Assistant Deputy Superintendent Maria Filipakis, General Counsel Danny Alter, and Deputy General Counsel Dana Syracuse) presided over two days (five panels) of virtual currency-related hearings.  (To view any of the panel comments in their entirety, visit http://www.totalwebcasting.com/view/?id=nysdfs.)  The hearings represent the most recent activity by New York’s top financial regulator concerning Bitcoin, which began last August when twenty-two industry participants received subpoenas in connection with Lawsky’s launch of an “information gathering” inquiry.  The hearings appear to have solidified Lawsky’s intent to introduce a new regulatory framework for virtual currency firms doing business in New York.  In light of the various testimonies at the hearings, Lawsky’s announcement raises many questions regarding the purpose and scope of such new regulatory framework.
Continue Reading NEW YORK DFS VIRTUAL CURRENCY HEARINGS POINT TO NEW “BITLICENSE” LAW

The United States Department of Treasury Financial Crimes Enforcement Network (“FinCEN”) supplemented its March 18, 2013 guidance on the applicability of federal money transmission regulations to virtual currency “miners” and investors with two letter rulings on January 30, 2014.  Both rulings are fact specific, but provide information and insight into FinCEN’s views on regulation of various participants in the virtual currency ecosystem under the Bank Secrecy Act (“BSA”).  The rulings establish that:
Continue Reading FinCEN Issues New Virtual Currency-Related Letter Rulings