Bloomberg: "Bitcoin Holders Resigned to Losses as Mt. Gox Faces Japan Probe"

"The Tokyo Metropolitan Police Department is in talks with Mt. Gox customers after it received inquiries from them, a police official said by phone, asking not to be named in accordance with department policy."

"Karl-Friedrich Lenz, a law professor at Tokyo’s Aoyama Gakuin University and a Mt. Gox customer, said the events at the exchange stem from the regulatory vacuum. “The Mt. Gox case is a good example of what happens if you ignore existing Japanese law requiring a bank license for taking deposits,” said Lenz, adding that he has a “small amount” at the exchange."

So it's starting to look like Mt. Gox was not complying with the laws in Japan for taking deposits. So when they went broke, it's crime, not just bankruptcy. If you lost money in Mt. Gox, it's time to contact the Tokyo Metropolitan Police Department and get your complaint in.

Right. "At this stage the relevant financial authorities, the police, the Finance Ministry and others are gathering information on the case," Chief Cabinet Secretary Yoshihide Suga told a regular news conference when asked about Tuesday's shutdown of the Tokyo-based exchange.

This is a very big deal. Yoshihide Suga is the #2 man in the Government of Japan. That's the job that usually leads to becoming Premier. There's no comparable job in the U.S. Government, but if there were, it would be Vice President+Press Secretary+White House Chief of Staff. If he says the police and the finance ministry are gathering information, he's not just commenting, he's giving orders. Those ministries report to him.

It looks like Mt. Gox is about to get "help" in finding the missing Bitcoins. Japan's Chief Cabinet Secretary Yoshihide Suga (#2 in the Government of Japan) announced in today's press conference that "At this stage the relevant financial authorities, the police, the Finance Ministry and others are gathering information on the case."

Mt. Gox just became a top priority for several ministries that have cops, auditors, computer experts, and the authority to use them on Mt. Gox. The era of Mt. Gox being able to control the situation just ended.

Reuters: "Japan authorities looking into closure of Mt. Gox bitcoin exchange"

"At this stage the relevant financial authorities, the police, the Finance Ministry and others are gathering information on the case," Yoshihide Suga told a regular news conference when asked about Tuesday's shutdown of the Tokyo-based exchange.

That's a very high level for this to be handled at. Chief Cabinet Secretary Suga is second in command to the Prime Minister of Japan.
For Suga to make that statement is a huge deal. That will be interpreted at all the relevant ministries as "get to the bottom of this and fast".

That Bingham paper is oriented more towards large corporate bankruptcies where the ongoing business is worth much more than the liquidation value, and where the business capital came from lending banks. That's not the case here. Mt Gox is more like a routine failed small/medium business liquidation.

Nishimura & Asahi is the biggest law firm in Japan. So Saito, an attorney there, is following the Mt. Gox situation and was quoted in the Wall Street Journal about it a few days ago.

A few months ago, I wrote on here that US exchanges should be SEC-registered broker/dealers, like every stockbroker in the US. That means exams and audits and regulation by FINRA. It also means insurance. Brokers pay premiums to the Securities Investors Protection Corporation. When a broker goes bust, the SIPC pays customer losses up to $500,000 per customer. They paid off for Madoff customers, for example. (Mr. Madoff is now Prisoner Number #61727-054 at Butner Federal Correctional Institution.)

The "deregulation" fanboys on here hated that idea. They were wrong.

I doubt that document is legit. There are two possibilities where it is not.

1) It was created by someone outside Mt. Gox.

2) It was created by someone within Mt. Gox, as deniable misinformation.

I suspect the latter. The document seems to be designed to deflect blame from Mt. Gox to unnamed "hackers". Note that there's no indication of any attempts to recover the supposedly stolen funds. Mt. Gox has records, the block chain has records, and Tokyo has police. Yet the document says nothing about recovery attempts or criminal complaints.

Realistically, if there was a big theft, it had inside "help". That document is designed to deflect attention from the big question: "Who stole the money?"

Second, the document is naive about Japanese law. It just assumes the business can continue without paying creditors. It doesn't work that way. There are six types of business bankruptcy in Japan, and to continue, they'd have to choose one of them.

I suspect that document is fake. Likely it was created outside Mt. Gox, or it was created within Mt. Gox as a deniable deception.

It's in the interest of Mt. Gox management that outside "hackers", not they, be blamed for losses. That's suspicious. No way could they lose that much via an outside attack. Inside help would be needed.

(I previously posted this in Service Discussion. Today, someone suggested I repost it in Legal. It seems timely.)

Here is a guide to bankruptcy in Japan, from Japan's largest law firm, Nishimura & Asahi:

IV. Liquidation under Bankruptcy Code

A. Commencement of Proceedings

An application can be made if (i) the debtor is unable to pay its debts generally or (ii) the liability of the debtor exceeds the value of the assets of debtor. Suspension of payment by the debtor shall be considered that the debtor is unable to pay its debts generally. An application for bankruptcy proceedings can be made not only by the debtor but also by creditors against the debtor.
...
D. Administration of Bankruptcy

1. Appointment of Administrator

The administrator is generally a practicing attorney. The administrator takes immediate possession of the debtor's assets (with the exception of assets which are exempt from the estate), administering and managing the bankruptcy estate until the final distribution of assets. Upon receiving permission from the court or the supervisory committee as described below, the administrator may convert all such assets into cash and deposit such in an appropriate bank.

Bankruptcies start fast - a week or two from filing to bankruptcy.

This will require a lawyer in Japan. It's what normally happens to companies in Japan who don't pay their bills.

Depositors with Mt. Gox may be able to argue that they have preferred status as secured creditors, because the Mt. Gox terms of service claim that depositor funds are kept in bank accounts separate from the company's own funds. So they should be paid before landlords, employees, etc.

That's a very good question. It's quite possible that it's fake. I've been bugging news outlets to insist that the guy who posted it post the actual file, not a link to scribd, so that forensic tools can be used on the source.

It also might be something someone at Mt. Gox planted, to direct attention away from internal theft and discourage efforts to force what's left of Mt. Gox into bankruptcy now.

This is the point at which people need to contact the Tokyo Metropolitan Police to report a major fraud. Do this now, so Mark Karpeles' passport can be flagged and he can't leave Japan.

At this point people with money in Mt. Gox should be contacting the Tokyo police and reporting that Mt. Gox took their money and disappeared as a company. Do this now. Make sure Mark Karpeles' passport is flagged so he can't leave Japan.

With Mt. Gox offline and rumored to be insolvent, it's more important than ever to do this. The people who were gearing up to sue Mt. Gox using Bingham should take the lead on the bankruptcy. Bankruptcy is how you stop the money that's left from disappearing.

Wrong answer. We do not "need to be patient." Mt. Gox needs to be killed off in a bankruptcy and their assets distributed to their depositors.

It's been half a year since Mt. Gox started dragging their feet on withdrawals. The "two week hiatus" on US dollar withdrawals from July 2013 never ended.

Mt. Gox has no counterclaim here. This is debt collection. It doesn't even matter whether Mt. Gox "has the Bitcoins". The only question is whether they're paying their debts, which, clearly, they are not.

That's why it's time to put Mt. Gox into involuntary bankruptcy.

In Japan, creditors don't have to prove that a company is insolvent to put them into bankruptcy. All creditors have to prove is that they've suspended payments on their debts. That's easy to prove with Mt. Gox - they've announced that.

The end of this farce may be in sight. It's reasonably clear that Mt. Gox isn't going to do anything until someone makes them. Well, there are ways to make them.

Different countries handle bankruptcy very differently. The US is relatively easy on bankrupt companies. In the US, forcing a debtor into involuntary bankruptcy is difficult and very rare.  Ireland, on the other hand, is very tough on debtors.  Japan is somewhere in the middle, but leans towards the tough end of the scale.

Dun and Bradstreet has a summary of collection options in Japan and how much they cost. As of 2000, a bankruptcy cost about $3000-$5000. Probably more if you have to do it cross-border.

If you're looking at this option, you need a lawyer who's familiar with bankruptcy procedures in Japan.

Here is a guide to bankruptcy in Japan, from Japan's largest law firm, Nishimura & Asahi:

IV. Liquidation under Bankruptcy Code

A. Commencement of Proceedings

An application can be made if (i) the debtor is unable to pay its debts generally or (ii) the liability of the debtor exceeds the value of the assets of debtor. Suspension of payment by the debtor shall be considered that the debtor is unable to pay its debts generally. An application for bankruptcy proceedings can be made not only by the debtor but also by creditors against the debtor.
...
D. Administration of Bankruptcy

1. Appointment of Administrator

The administrator is generally a practicing attorney. The administrator takes immediate possession of the debtor's assets (with the exception of assets which are exempt from the estate), administering and managing the bankruptcy estate until the final distribution of assets. Upon receiving permission from the court or the supervisory committee as described below, the administrator may convert all such assets into cash and deposit such in an appropriate bank.

Bankruptcies start fast - a week or two from filing to bankruptcy.

This will require a lawyer in Japan. It's what normally happens to companies in Japan who don't pay their bills.

Depositors with Mt. Gox may be able to argue that they have preferred status as secured creditors, because the Mt. Gox terms of service claim that depositor funds are kept in bank accounts separate from the company's own funds. So they should be paid before landlords, employees, etc.

I can't find anything like this in Japanese media either, and I've been looking.

This may be a misunderstanding of this CNBC article:

A small protest outside the offices of Mt Gox has been ongoing since last Friday. Two Mt Gox customers, including former software developer Kolin Burges, have traveled to Japan in the hope of retrieving their bitcoins and finding out more details of the trading halt.

Burges told CNBC via telephone that there had been implications that the protest had been the reason for Mt Gox's move, with an angry landlord threatening to expel the company. However, Burges said he didn't believe this to be the case and considered that the company may have been the subject of a more formal physical threat from users with large deposits at Mt Gox.

"Nobody is really sure of what is going on," he said. "I have seen a couple of large security guards at the offices all day today."

There are other articles based on that article, some not too clear. After a few rewrites and translations, something like the original poster's rumor may have emerged.