What on earth makes you think that MtGox servers are located at their offices?

Do y'all realise that this isn't a "new" location and that MtGox has operated from Cerualean Tower in the past?

The feds can and do go after offshore companies.  The online poker busts are a good example of this.

Situations like this boil down to a matter of preference.  "The community" is not some monolithic entity run by a committee or a democracy in which the majority preference prevails.  People have different philosophies regarding Bitcoin and want different solutions when a crisis happens. 

You can discuss the philosophical issues regarding involving authorities in the problems of Bitcoin services until you're blue in the face but people have the right to act in their own best interest in situations like this and to seek punishment of wrongdoers if that's what they believe will lead to other services being less reckless.  It's not as though not involving the authorities has had a great track record in the past.

This isn't usually a problem because most licensed money transmitters have more than enough assets to pay out customer balances even when they have to pay very large civil forfeitures.

There's inherent risk in using services you know to be unlicensed and uninsured, especially if they're small.  People might judge using the exchanges as being "worth the risk" of losing their funds to hacks, the operators running with the funds or regulators seizing the service and all its assets, but users know these risks exist and have little cause for complaint when those events actually happen.

Admitting any responsibility on their own part would have opened them up to even more potential legal shit than they're already in.

MtGox has always operated with a dangerous mix of arrogance and incompetence.  That has led them into one situation after another where they've come off second best, losing funds in the process.

Bitcoin can afford for an exchange to fail, even one as big as MtGox.  It's the circumstances of their failure which have the potential to have a wide impact on Bitcoin generally.  If they fail merely because their business decisions have resulted in insolvency, that will have a limited impact on Bitcoin in general.  It might lead to demands for increased transparency on the part of other exchanges, but that would be a good thing.

If MtGox goes down due to regulatory or AML issues, though, then all exchanges are in jeopardy and using an exchange at all would be playing the same kind of Russian roulette which dark market users have been playing ever since SR1 was taken down last year (only to lose funds on one dark net market after another).  

Bitcoin is so speculation driven that it would be severely affected if people started to believe there's no such thing as a safe exchange, but speculators leaving the market could well be the turning point many have been hoping for where Bitcoin is used primarily for transferring funds and purchasing goods and services rather than attracting people because of price volatility.

It's possible that money will go to the government in a civil forfeiture and no-one will be able to claim against it.

Their ToS acknowledges user funds as belonging to users.  While it contains boilerplate indemnity clauses, it would be extremely difficult for MtGox to argue that it has no contract with its users. 

The full extent of their liability is a bit less clear because of the disclaimers and the question of whether they have been deceiving their users, but they've got no hope of arguing that there was no "meeting of the minds" regarding the purpose for which people used their exchange and the expectation that user funds would be available on request.

The likelihood that anything they do now is going to be too little too late has to be considered.  They have problems happening on multiple fronts and their inability to release user funds in a timely manner might not even be the biggest of their problems.

That may be true but it's still going to be costing MtGox and Tibbane a pretty penny in legal fees until the matter is determined (remember there are two actions here - one by Coinlab against MtGox and a counterclaim for the return of ~$5 million by MtGox against Coinlab).  MtGox may well prevail, but it could still be a while before they get their $5 million back and and their legal fees reimbursed (and Coinlab may well appeal any judgement against them).

Who knows whether Coinlab even has the capacity to pay any judgement against them?  MtGox could win the battle and lose the war on that one.

On a slightly related note, Brian Cartmell must be starting to feel like the angel of death where Bitcoin is concerned.

That was probably the jurisdiction stipulated in the contract between Coinlab and MtGox.

It's unlikely that MtGox has any significant assets in the US any more.  The whole point of the Coinlab/MtGox deal was to put MtGox at arm's length from US transactions.  They already saw long ago that US based assets would make them vulnerable. The company MtGox set up in the US in order to funnel transactions already had its funds on hand seized.

MtGox customers can certainly launch action in the US against MtGox, but it might not be the optimum legal strategy against a company which isn't based in the US and whose bank accounts are held in Japan and Poland.  There is also no guarantee that MtGox would accept the authority of a US court.  They've refused so far to recognise the authority of NZ law in relation to the Bitcoinica funds still held on MtGox.  Litigation is expensive enough and there is no guarantee that a Japanese court would domesticate any orders made in the US.

If you want to take a US-based route, then using US regulators is likely to result in faster action and a quicker result than protracted litigation initiated by users (especially when you consider that MtGox may have to pay out large amounts when litigation already in progress is determined later this year).

Asking for information about the origin of funds is an AML thing.  It's a legitimate thing done by many financial institutions when the system flags a transaction as "suspicious" and the answers given to such questions often determine whether or not a formal report is made to financial intelligence organisations.

It's possible that they're being overly cautious at the moment regarding possible money laundering activity.  They can't really afford not to be as it's the thing most likely to bring down legitimate services as the fallout from SR1 continues.  

None of these services are going to stay in business for any length of time without being AML/KYC compliant.  Annoying as it might be to feel like your transactions are being unfairly scrutinised, it's preferable to going to withdraw your funds only to find that the domain has been seized by authorities and all funds frozen.


Many Bitcoin enterprises try to be AML/KYC compliant in the hope that if they come to the attention of authorities they won't get prosecuted for money laundering in addition to being fined for operating their service without the appropriate licences.

The bare minimum KYC required and the enhanced KYC which is required if something flags the system as "suspicious" are two different things.  Any financial service can ask for additional KYC information at any time.  Enhanced KYC is extremely common.  Financial institutions develop their own risk management systems and tend to err on the side of caution because they're facing massive fines if they fail to take adequate measures to detect money laundering.  Your remedy if you don't like one service's policies is to use another service.

The contract itself almost certainly had a jurisdiction clause so that issue was probably never open to question.

Mark's statement said that their "business model" is OK in the eyes of the regulators.  That doesn't mean for a minute that they're not breaking any laws. 

It's absolutely appropriate to bring to the attention of the authorities that MtGox has been increasingly restricting the ability of its users to withdraw their funds and ask those authorities to look into whether the company is knowingly continuing to take more user funds while actually insolvent.  They can be forced to disclose the the authorities information which they're not obligated to tell their users.  Action by the authorities is likely to bring a definitive answer about the solvency of MtGox far more quickly than litigation by users.

If the government wants access to the database, why bother doing anything other than getting it directly by issuing a subpoena for theymos to turn it over?  Or a court order allowing them to image it surreptitiously (as they did with SR)?  They don't need to fuck around and try to get it through people contracted to build a new forum. 

There already multiple investigations in place into the actions of users who are alleged to have committed crimes involving Bitcoin.  It wouldn't be hard to persuade a court to authorise the government to access the database either overtly or covertly to gather further evidence for those cases.

It's even more hilarious because "Bitcointalk" as an entity doesn't even really exist.  It's not a registered non-profit.  There appears to have been no attempt to establish it as even an LLC despite theymos holding more than enough funds to got through that step.  At the end of the day it's unlikely that the government would view "Bitcointalk" income (whether donations or ad revenue) as anything other than theymos' income and theymos alone as responsible for operating the "business" of Bitcointalk.

When the IRS comes knocking, the onus is going to be on theymos to prove that anyone other than him has any legal liability whatsoever in relation to Bitcointalk.  "I don't believe in regulations" isn't going to cut it as a defence to failing to comply with those regulations.

It's also rather amusing that when Bitcoin was worth fuck all nobody really cared all that much that their donations were in the hands of a young kid with no business or project management experience - now those donations are worth several million dollars, people suddenly care but there's no real way to wrest that control away from him and put it in more experienced hands or to ensure that he acts in good faith.

MtGox may comply with an order from a Japanese court, but based on the Bitcoinica experience they're not going to comply with orders of foreign courts unless they have assets located within the jurisdiction of those courts -which at this stage seems to be Japan and Poland.

People need to remember that they're already embroiled in existing legal actions (both lawsuits and investigations related to money laundering).  Regulators could shut them down at any moment even if they are solvent and other legal actions could drive them out of business long before there's a judgement on any new lawsuit.

It's worrying that Mark is unwilling to make a public statement reassuring people that MtGox has sufficient funds to cover all users balances.  Whenever a company is continuing to allow money to come in but finding more and more ways to delay outgoing payments, the issue of their solvency is going to be front and centre and needs to be addressed urgently.  

MtGox may have no legal obligation to make its accounts public, but an auditor's statement would certainly go along way towards reassuring people that it's financially sound.  The absence of such reassurance is especially baffling given that concerns about a company's solvency can sink it even if it's viable.  It's difficult not to wonder whether MtGox isn't giving that assurance because they're unwilling to make a public statement regarding their solvency which they know to be false (not sure whether this could open them up to further legal consequences in Japan).

People who believe MtGox couldn't possibly be insolvent because of the amount of revenue they've taken in are nuts.  Billion dollar corporations have become insolvent in the past and we know that MtGox has spent large amounts of money on legal proceedings, had funds frozen by financial institutions, and had funds seized.  We have no idea how much it may also have lost to fraud and hacks.  Financial institutions tend not to make such information public because it undermines customer confidence as well as publicising the fact that they are vulnerable, but the amount of losses is not going to be zero.

They're always back-logged and there's always an excuse.  They could choose to accept new accounts at the rate they can process them but they don't.

And yeah, depositing with MtGox prior to verification is just insane.  Their track record is well publicised.

Worth repeating as it seems to have been overlooked.

It was even more clever than that.  When withdrawals were suspended, they announced that there would be a minimum withdrawal of 1 BTC when withdrawals resumed and put up a "countdown timer".  So people with less than 1 BTC in their accounts who were silly enough to believe the bullshit about them implementing a tumbler actually deposited additional funds to their user balances so they could withdraw.  They didn't just get the escrow funds - they also got a whole heap of people to add additional funds to balances they were keeping on the site (one quite weird thing which a couple of redditors have noticed is that whoever is doing this seems to like whole numbers).

And yeah, it's only the total losses which are larger in the drug marketplaces because of the sheer amount of BTC moving through it at any one time.  People continue to lose money by giving their BTC to third party services, including some which are operated by anonymous players.  There are multiple ways that user funds can be lost by any Bitcoin service which holds user funds, and that should never be forgotten.

The reddit chase is looking interesting at the moment.  It's not confirmed by others yet, but it looks like the main sheep wallet already contained a lot of BTC prior to SMP opening.  That may or may not help in identifying the person behind SMP.

http://www.reddit.com/r/SheepMarketplace/comments/1rzfue/the_main_sheep_wallet_contained_millions_from_a/

It's not going to make people think twice about leaving money on these sites, any more than the many losses people have suffered through wallet services and exchanges failing/disappearing into the void have stopped people leaving their BTC in the control of others. 

BTC held on third party sites are always at risk of loss, no matter how much you trust the operator.  They could be seized by law enforcement or the site could be hacked.

Yeah, vendors have lost a lot of money, but for many it's a cost of doing business and the overall risks of online business are still less than the overall risks of being a bricks and mortar vendor.  Funds in escrow will always be vulnerable.

reddit's been tracking the BTC (it's actually over 96,000 BTC).  Turns out it's not all that easy to tumble a quantity that large.

Nobody has definitely tracked down the site admin/s yet.  So far, it hasn't been possible to establish whether the names people have uncovered belong to those who were actually operating SMP.

The reddit threads have the most up to date information.

http://www.reddit.com/r/SheepMarketplace/comments/1rvlft/i_just_chased_him_through_a_bitcoin_tumbler_and/

http://www.reddit.com/r/SheepMarketplace/comments/1rxjsc/ji%C5%99ikovsk%C3%BDs_girlfriend_made_a_statement_on_her/#