He's a taxation specialist who sets up NZ companies for people (NZ is a tax haven for foreign investors).  It's not especially unusual for accountants to have "shelf" companies already set up and ready to go as the need arises.  They're set up with a name, fuck all capital, and the accountant acting as director.  When someone wants a company in a hurry, they can basically change all the details after the fact - name, directors, shareholders.  The risk for the accountant is that as long as he's still listed as director, he has some liability if the company trades recklessly or while insolvent.


It's not that unusual to have a lot of overlap in the world of venture capital.  You get a lot of the same people investing in a range of different projects, but they're separate legal entities even though some of the individuals might be the same.  NZ has quite a few accounting firms which link up VCs with projects.  Someone who's soliciting capital for one project can be providing it for another.  There's a New Zealand VC who's registered three Bitcoin related entities this year but I've never heard of either him or the companies, so I suspect he's waiting for the appropriate project and other investors to launch them.

Most of this isn't going to matter in terms of Bitcoinica users getting their money back.  Still, the back story since Zhou sold the domain name and IP is pretty intriguing in itself.

Things that make you go "hmmmm".

Probably unrelated, but it's one hell of a coincidence that the same accountant who set up the other NZ entities associated with Bitcoinica Consultancy LP recently set up another entity which just happens to have the same name as the presumed original buyer of the Bitcoinica domain and IP.

http://www.business.govt.nz/companies/app/ui/pages/companies/3837998

Bitcoinica Consultancy Ltd's record now shows "Notification of director appointment(s) pending".

Bitcoinica LP is now undeniably insolvent and that's a game changer.  It's extremely unlikely that any lawyer would advise an insolvent entity to try to handle the claims process themselves - the risk of them fucking it up in some way is just too great.  

Funds on hand aren't the only thing in play now.  All assets and all liabilities need to be taken into account.  Someone owns the Bitcoinica domain and the IP, but the question is who.  If those things are an asset of Bitcoinica LP (which would be a stupid way to set things up, but there's been no shortage of stupid in this saga), then they need to be liquidated (not that they'd have much value now).  Creditors other than users also need to be considered.  We don't know whether there were any conditions attached to the funds Tihan injected after the Rackspace intrusion.  It may well have been a loan.

Frustrating as it is for users, Bitcoinica needs to not make any public statements other than "we're consulting our legal advisers" right now.  "What next" is something which absolutely should not be decided without extensive consultation with their legal and financial advisors - deciding to "do it themselves" last time around rather than involve professionals in the refund process is partly responsible for the latest calamity.

Also, Amir's probably not the best person to take over handling the claims.



http://www.reddit.com/r/Bitcoin/comments/wbmxi/lost_bitcointalk_account_password_mod_contact/

Guess he thought using the password reset option for his forum account was too risky after what happened with Rackspace.  

I think that the position of the Intersango guys was that weren't technically general partners at the time of the Rackspace intrusion because the paperwork for establishing Bitcoinica Consultancy hadn't been completed and that therefore they had neither any liability for the intrusion nor any authority to initiate the claims process.  Tihan's position was that they did have both liability and authority and that not completing the paperwork would be regarded as an attempt to avoid that liability.

While you're always liable if you're on the corporate documents, whether or not you're actively participating in the business, not being on the corporate documents doesn't necessarily protect you from liability if you've been essentially acting as a director.  The announcement had already been made that Bitcoinica Consultancy would be acting as general partner and operating the business from 24 April and as far as we know they were actually doing that when the Rackspace intrusion occurred - which may mean they would be found to have been acting as directors of the  general partner whether or not the paperwork had been signed.

The Intersango guys are essentially saying "we did everyone a favour by signing the paperwork to create Bitcoinica Consultancy so we could handle the claims process - and we weren't legally obliged to do that".  In fact, much discussion has gone on about what people weren't legally obliged to do - Tihan covering the Rackspace losses, Zhou helping rebuild records after the Rackspace intrusion, the Intersango handling the claims process.  There's been much less discussion of how each of the parties intends to proceed now and that probably won't be known until they've received legal advice on where they each stand in terms of liability, not just to users but also to each other.

That was kind of my point.  If you're going to apply the tag, then you do it to the individuals rather than to Bitcoinica as an entity because if Bitcoinica never operates again then having scammer tag against the Bitcoinica Consultancy account really doesn't serve as an alert to anyone.  You're right that some of the same people run Intersango, but it's not clear whether all of the Intersango guys were formally involved in Bitcoinica - if not, should the ones who weren't also get the tag?

After the amount of misogyny Jessy Kang encountered in that thread, it's not surprising that female forum members might choose not to disclose their gender.

I can't even wrap my head around their argument.  It sounds like "in order to protect your free speech we must censor it".  It also sounds very much like they want to be allowed to accept payment for blocking access to certain types of content (file sharing anyone?).

It will be interesting to see how this plays out in the US.

On a positive note, the BTC Chris is holding have increased in value so if they were to be liquidated and distributed now, people would receive a greater amount than they would have a few months back.

Some people have posted that they've received 50% of their claim back.  I don't think anyone knows how the latest compromise will affect the payout process other than the fact that payouts will be reduced.

I don't see any point in giving Bitcoinica as an entity a scammer tag.  It's not operating at the moment.  It's just a brand name.  It may never resume trading and if it does it may be under the control of parties who were unrelated to this series of disasters.  If the same principals were to launch a similar endeavour or relaunch Bitcoinica then I think that a cautionary note would be appropriate but it would be meaningless right now.

They're not part of the disputes resolution scheme and even if they were, that they owe the money is not in dispute.  The issue now is that they don't have the money to pay out all user claims (we don't actually know whether they have other creditors).  That makes it an insolvency issue, so that's the most appropriate mechanism through which people can pursue their money.  Nobody wanted to do that last time around because they believed that Tihan would make up the losses and insolvency proceedings cost money.  Bitcoinica's line was that it would take longer and people would receive less via liquidation than if Bitcoinica itself handled the process.  There is nothing stopping users forcing the appointment of a liquidator now.

People really need to check with legal advisors in their own jurisdictions.  In mine, the regulators who oversee financial service providers do not assist with debt recovery.  They fine the wrong-doers (and may revoke their licence if they're licensed).  The fact of an entity having been sanctioned can then be used as the basis of a civil action.

Public prosecutors could become involved if there is sufficient evidence of criminal activity, but that's a separate area of law than either creditors taking legal action for the recovery of funds or regulators imposing sanctions.  If there is a criminal investigation, it's likely that all assets will be frozen until that investigation is complete.  If there's a civil action commenced, it's likely that one of the first motions filed will be for an injunction which prevents Bitcoinica touching the remaining assets for any purpose until the matter is determined.  People could take individual actions, but any payments made could be subject to claw back if and when Bitcoinica becomes formally insolvent (if you can't pay everyone, you can't legally give one unsecured creditor priority over others).

By far the quickest way for people to get the available funds returned to them is voluntary or involuntary liquidation of Bitcoinica.  This ensures that the estate is distributed according to law and the process is overseen by a court.  It can be a lengthy process (3-6 months), but not in the same ball park as class actions.  It's advantageous in that from the moment the liquidation process starts the assets are no longer under the control of the company principals.  Liquidators can look for third party investors to bail the company out (in practice, rather than actively looking they will consider offer which would benefit those owed money) or allow the company to trade out of trouble if they believe that this would result in a greater return in a reasonable amount of time.

Insolvency proceedings don't prevent users from exploring other avenues of redress.

Perhaps there should be a "find the Bitcoinica hacker" challenge issued at DEF CON.

It could also get messy if the limited partner sues the general partner.  There really aren't any good options any more, only least worst ones.

More please.

Having discovered one weakness, why would on earth would they not look for more - and why would others not also be encouraged to look for further vulnerabilities?  In the physical world, homes are often robbed twice in close succession because it's assumed that the first lot of stolen items will be replaced - often by newer items at an insurance company's expense.

It was fairly safe to assume that Bitcoinica would transfer both USD and BTC to MtGox to make the refunds - they'd been asking people to tell them their preferred method of repayment - and that they'd do so in significant amounts.

A trip down memory lane from the Linode attack thread.


I guess that question finally got answered.

Mark has always discouraged people from using MtGox as a wallet.  This time last year, people were putting money into MtGox, trading and taking it out before the weekend.  Then people got sick of missing out on significant movements because they had no funds on MtGox (and couldn't get any on there quickly) and started leaving them on there.  No-one's ever suggested that is wise.  Those deposits - whether currency or Bitcoin - aren't insured or guaranteed so there will always be some level of risk in parking funds on any exchange.  Even MtGox's capacity to absorb losses isn't unlimited.

Did your lawyer talk to him or did you just give your lawyer's details to Andre via his current contact methods?

Their personal lawyers are probably horrified by the statements which have been made to date and and told them to STFU and not make any further comments without legal advice.

The problem is people placing money which they can't afford to lose or to which they need near immediate access.  Look at how often there are threads about delays in withdrawals from exchanges leaving someone able to pay their bills.  Bitcoinica was inherently higher risk than the exchanges and using either it or the exchanges as a wallet only compounds the risk.  Neither's a safe place to leave your hard earned savings - solvency doesn't guarantee that they won't be shut down or have funds frozen.

And yeah, people were pleading for someone to offer the options which Bitcoinica provided and were quick to jump onboard when it first emerged (which was only in September last year).  Far too often, though, people are quick to praise something as the new best thing - how many different payment processors have been embraced by the community only for them to be rejected only months later - and complain when inherent risk bites them on the ass.

I should probably point out that it's not clear whether or not Patrick was ever one of the partners in Bitcoinica Consultancy Ltd (the general partner of Bitcoinica LP) or whether he was providing assistance purely as a favour (his posts suggest this is the case).  Even prior to the MtGox intrusion, he expressed concern about the morality of the refund process as there were insufficient assets for everyone to receive 100% refunds (whereas people had been led to believe that Tihan was covering the losses from the Linode and Rackspace intrusions and that users would receive 100% of their funds back in two payments of 50%).

I suspect that everyone involved in this saga has revealed part of the truth but it will be some time until the whole truth is known. For instance, does the party which originally bought the Bitcoinica domain and the IP from Zhou still own it and if not which entity or person currently owns those things (the value of which has obviously been diminished by recent clusterfucks).

There's been no official statement to date about what their intention is regarding resuming the processing of refunds.  Amir said he thought there'd be a forced reduction of 30% in refunds but obviously that isn't a decision Amir is able to make alone and if Patrick has walked away then who knows when Donald and Amir will be able to agree on a plan.

I do think that it's time Donald stepped up to the plate and brought some clarity to the situation.  It's unfair for Amir to always be placed in the position of delivering messages regarding the refunds when he's had minimal involvement in the process.