How to put Mt. Gox into involuntary bankruptcy in Japan.

[CompNsci]

This is kind of interesting because elsewhere the fees of those appointed by the court are paid out of the insolvency estate (the hourly rate they can charge is set - it's hundreds of dollars per hour here plus additional fees for administrative staff, accountants, etc).  Are you saying that even if this takes thousands of hours of work to sort out (which it may well do) and the cost runs into millions, the government will pay for that and not a cent of those fees will come out of the remaining assets of MtGox?

The attorney we had retained on this matter indicated that the fees are paid out of the assets of the insolvent company, so I believe similar to other countries in that regard.

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[repentance]

It's a little bit of a tangent but related.

According to this, the court generally makes a determination about whether restructuring will go ahead within one month of filing.


III. Civil Reconstruction under the Civil Reconstruction Code

C. Adjudication for Commencement of Civil Reconstruction

The court usually determines to commence the civil reconstruction process within one month after the application is filed. If the debtor meets any of the criteria specified in items (i) and (ii) of Section II.A. above, the court will issue an order for commencement of the process of civil reconstruction unless it is apparent that a cause for dismissal exists. Causes for dismissal include that the application was filed for undue purposes or that there is no likelihood the Plan for Reconstruction will be approved by the creditors.

http://www.jurists.co.jp/en/topics/others_4007.html

I can't see a hope in hell of MtGox coming up with a viable plan within a month or coming up with a plan which will get the approval of 50% of unsecured creditors, so I wouldn't be surprised if this proceeds to liquidation relatively quickly.

[Nagle]

I can't see a hope in hell of MtGox coming up with a viable plan within a month or coming up with a plan which will get the approval of 50% of unsecured creditors, so I wouldn't be surprised if this proceeds to liquidation relatively quickly.

Right. Also, the court can put in a trustee (replacing the CEO) instead of a supervisor. This is likely where there is evidence of fraud. With all the lawsuits underway, I expect that evidence of fraud will be presented to the court in Tokyo.

What's really needed is to bring in a trustee, computer forensics experts, forensic auditors, and criminal investigators to find out where the assets went and where they are now. The court and the Tokyo police have the authority to do that.

Whether they have the technical competence is a question. The Tokyo police have a cybercrime unit, but it's less than a year old.  The National Police Agency in Japan has a temporary cyber-crime study group, which was supposed to report on starting up a national cyber-crime center by the end of 2013. One would think that Japan would be further along in this area, but apparently not.

[repentance]

Whether they have the technical competence is a question. The Tokyo police have a cybercrime unit, but it's less than a year old.  The National Police Agency in Japan has a temporary cyber-crime study group, which was supposed to report on starting up a national cyber-crime center by the end of 2013. One would think that Japan would be further along in this area, but apparently not.

The US Attorney (Manhattan) and the FBI have both gotten involved in this according to Bloomberg, so I think there'll be US technical competence involved in this whether or not it's directly through the bankruptcy proceedings.  I doubt that the supervisor/trustee is going to deny US law enforcement access to MtGox records given that Japan has multiple co-operation agreements with the US in respect of financial and other crimes.

There's also the local jurisdiction issue of exactly which law enforcement agency would be responsible for investigating various aspects of this case (here it usually ends up being one agency pulling in assistance from other agencies which have various expert resources).

The "truth" about MtGox might not come from investigations carried out by the supervisor/trustee/local police, but rather from international investigations into crimes largely unrelated to the collapse of MtGox.

The reason I believe restructuring won't work is because the numbers don't work.  MtGox's own financial projections simply don't project sufficient profit for restructuring to be a viable alternative.  It would only "work" if all BTC debt was eliminated (the loss is too great to be recovered from future profits) and fiat liabilities were written down by the supervisor/trustee (apparently they can do this in respect of unsecured creditors). Unfortunately, even doing that wouldn't guarantee MtGox being viable because of other legal issues which it's been unable to solve - it's the same reason why converting debt to equity and effectively making creditors shareholders isn't a workable option.

[darkmule]

Yes, those are all books. Big books with lots of words. You'll see precedents for just about every scam seen in the Bitcoin world.

So which of them involve a purported Japanese corporation trading in a cryptocurrency where the bulk of business was outside of Japan, the CEO is a French national, and there are competing and mutually exclusive claims in Poland, the United States, and Japan?

Additionally, there may be more assets available than Gox is claiming.  I remain skeptical that they actually lost something like 750,000 BTC over the course of months or even years and didn't even notice it disappearing.  Sure, it's hard to imagine why they'd claim that if it weren't true (unless they stole it themselves), but nothing about this makes much sense.

So a Japanese court in bankruptcy (if it doesn't find some forum non conveniens-type reason to say fuck this and let someone somewhere else handle it) will have to resolve what Bitcoin legally is, whether there's a fiduciary duty here (seems there is), what precedence different kinds of debt will have in this situation (particularly cryptocurrency), figure out where the money is if anywhere, etc.  No court has ever addressed these specific issues in Japan, and they are basically unresolved elsewhere.

The fact that scams have existed in the past (duh) isn't really relevant to the legal issues this particular court will have to figure out in this particular case.  The Japanese legal system is also so absurdly slow that it is a virtual certainty some creditors will attempt to bypass it and have another court in another country assert jurisdiction over the same issues, prompting a jurisdictional fight.  I'm not sure why people are certain that Japanese courts are going to be incredibly eager to take up this case, and I think it is just as likely that given any legal doctrine or excuse, they'd rather it were someone else's problem.  Unless, of course, they actually are insulted enough by Magikarpeles that they want to go after him criminally and then they'd probably want to deal with the whole ball of wax.

[darkmule]

The wild cards are personal liability - ie, can Mark and Jed be found personally liable for the losses and their assets attached (this can happen under certain circumstances in other jurisdictions) by the supervisor/trustee - government seizure, and whether BTC liabilities will be rolled into the civil rehabilitation (it can't possibly work if they are, so civil rehabilitation would just become the scenic route to liquidation).

This is actually a very good point.  Considering how much diligence they put into their codebase, which was Karpeles personally, basically, I can't imagine what their compliance with corporate integrity would have been.  It could be that they also screwed up their corporate filings and other formalities so much that the corporation is basically an alter-ego of the principals, i.e. something more like a partnership than a corporation, where the individual partners can be held liable.

I wouldn't even speculate as to exactly how Japan deals with the concept of "piercing the corporate veil," but I'd consider it highly possible.  Not because of any specific evidence I have, but just because of what a bunch of fuckups these people are.

[Nagle]

This is actually a very good point.  Considering how much diligence they put into their codebase, which was Karpeles personally, basically, I can't imagine what their compliance with corporate integrity would have been.  It could be that they also screwed up their corporate filings and other formalities so much that the corporation is basically an alter-ego of the principals, i.e. something more like a partnership than a corporation, where the individual partners can be held liable.

I wouldn't even speculate as to exactly how Japan deals with the concept of "piercing the corporate veil," but I'd consider it highly possible.  Not because of any specific evidence I have, but just because of what a bunch of fuckups these people are.

Now that's an important point. Take a look at this: "Corporate - Transparency of Japanese Law". Supreme Court of Japan: "Where the legal personality of [a company] is nothing more than a mere shell, or where it is misused in order to avoid the application of legislation…it will be necessary to pierce the corporate veil." That's similar to US law. "Piercing the corporate veil" in single-owner company situations where fraud is involved is not uncommon.

The next question is what kind of corporation Mt. Gox is. Tibanne KK, which may be the parent of Mt. Gox, is a kabushiki kaisha, a stock company. They're supposed to have a board of directors, stockholders meetings,  a company auditor, a board of company auditors, an accounting advisor and an accounting auditor. As far as we know, none of those things existed. It's not clear what "Mt. Gox Ltd" is, or who owns them.

"Piercing the corporate veil" here may involve the relationships between Mt. Gox and Tibanne as well as between Mark Karpeles and the various corporate entities.Where assets and liabilities of the different companies were not clearly distinguished, piercing the corporate veil is likely.  This is the sort of thing that corporate lawyers routinely untangle.

Here's a commentary from a law firm on piercing the corporate veil in US law:

In determining whether corporation is merely the alter ego of an individual, a court will look at a number of factors.  It is important to remember that no single factor will generally be determinative and the cases that explain this doctrine tend to look at the totality of the circumstances.  These factors include:
1. inadequate capitalization,
2. failure to issue stock
3. failure to observe corporate formalities
4. nonpayment of dividends
5. insolvency of the debtor corporation
7. absence of corporate records
8. commingling of funds
9. diversion of assets from the corporation by or to a stockholder or other person or entity to the determinant of creditors
10. failure to maintain arm’s length relationships among related entities
11. whether, in fact, the corporation is a mere façade for the operation of the dominant stockholders.

Mt. Gox probably qualifies on most of those counts.

Does anyone have a lawyer representing creditors involved in the bankruptcy proceeding yet?

[CompNsci]

I can't see a hope in hell of MtGox coming up with a viable plan within a month or coming up with a plan which will get the approval of 50% of unsecured creditors, so I wouldn't be surprised if this proceeds to liquidation relatively quickly.

A very interesting detail in all this. Sounds like we should expect some news within a month then. I agree, this is likely just a step on the way to liquidation. Unless MK pulls something out of the hat, like finding the missing BTC, or if they are under some legal control elsewhere.

[CompNsci]

Does anyone have a lawyer representing creditors involved in the bankruptcy proceeding yet?

Yes, though apparently we mostly wait for the next post and filing, unless we want to spend money to try and force Mark Karpeles out now, which there hasn't much enthusiasm for doing.

[rochkey]

re lawyers working on case:


http://www.coindesk.com/mt-gox-lawsuit-target-mark-karpeles-personal-wealth/

[Nagle]

Does anyone have a lawyer representing creditors involved in the bankruptcy proceeding yet?

Yes, though apparently we mostly wait for the next post and filing, unless we want to spend money to try and force Mark Karpeles out now, which there hasn't much enthusiasm for doing.

Well, it's your lawsuit and your call. Still, making sure records and assets are preserved despite anything Karpeles does is top priority.

[repentance]

"Piercing the corporate veil" here may involve the relationships between Mt. Gox and Tibanne as well as between Mark Karpeles and the various corporate entities.Where assets and liabilities of the different companies were not clearly distinguished, piercing the corporate veil is likely.  This is the sort of thing that corporate lawyers routinely untangle.

This is addressed somewhat in the Chicago lawsuit where it's being argued that Mark is indistinguishable from Tibanne, MtGox and MtGox Inc.  Unfortunately, their information is unreliable.  They claim that Mark is the sole shareholder in all three entities but according to MtGox's own business plan Tibanne owns 88% of MtGox and Jed McCaleb owns 12% of MtGox.

The financials are kind of interesting in that MtGox paid consulting fees to Tibanne.  It's not an unusual way to set things up, but I'd probably look to Tibanne's financials rather than those of MtGox to find out how much Mark has been paid.

[Nagle]

Useful article at the Wall Street Journal: Mt. Gox’s Bankruptcy Case Will Be Unlike Any Other . Top bankruptcy lawyers from major law firms see this as hard.

However, it will all get a lot simpler if there are some arrests.

[repentance]

Useful article at the Wall Street Journal: Mt. Gox’s Bankruptcy Case Will Be Unlike Any Other . Top bankruptcy lawyers from major law firms see this as hard.

However, it will all get a lot simpler if there are some arrests.

"Simpler" won't necessarily increase the likelihood of MtGox users ever recovering any funds.

[Nagle]

Useful article at the Wall Street Journal: Mt. Gox’s Bankruptcy Case Will Be Unlike Any Other . Top bankruptcy lawyers from major law firms see this as hard.

However, it will all get a lot simpler if there are some arrests.

"Simpler" won't necessarily increase the likelihood of MtGox users ever recovering any funds.

Yes, it will. First, if fraud is proven, Karpeles' personal assets go into the recoverable funds. Second, much more can be done to find the missing funds in a criminal case than in the current debtor-in-possession situation. Third, other Mt. Gox employees can be questioned.

[repentance]

Useful article at the Wall Street Journal: Mt. Gox’s Bankruptcy Case Will Be Unlike Any Other . Top bankruptcy lawyers from major law firms see this as hard.

However, it will all get a lot simpler if there are some arrests.

"Simpler" won't necessarily increase the likelihood of MtGox users ever recovering any funds.

Yes, it will. First, if fraud is proven, Karpeles' personal assets go into the recoverable funds. Second, much more can be done to find the missing funds in a criminal case than in the current debtor-in-possession situation. Third, other Mt. Gox employees can be questioned.

I'm a bit more cynical than you and believe that criminal investigations are likely to reveal activity which will result in seizure of assets by various law enforcement authorities, making those assets unavailable for satisfaction of creditor claims.  There's non-trivial chance that a proportion of the assets of Mark, Tibanne and MtGox can be demonstrated to in some way have been obtained from people using MtGox for criminal activity and if those assets are seized then the onus will be on Mark and creditors to prove seized funds were legitimately obtained.

The criminal investigation aspect of this is a double-edged sword which can complicate the insolvency even further (both could drag on for a long time).

[CompNsci]

Well, it's your lawsuit and your call. Still, making sure records and assets are preserved despite anything Karpeles does is top priority.

Yes, though when I suggested the verifiable Mt. Gox addresses on the blockchain be frozen for this purpose, it raised howls of indignation.

[papamoi]

I m thinking that if there is any technical way to freeze these stolen btc i would be in favour of it

but i don t know if this is doable or not?

[repentance]

I m thinking that if there is any technical way to freeze these stolen btc i would be in favour of it

but i don t know if this is doable or not?

You could get an injunction to specifically prevent them moving any BTC from certain addresses (technically they aren't supposed to move anything at the moment anyway).  You could ultimately seek an order to have BTC from those addresses transferred to an address controlled by the supervisor/investigator. 

It all depends on how willing MtGox is to risk being in contempt of court and how long it might take to get such orders - and whether you can prove that the addresses belong to MtGox (they shouldn't be "frozen"  or seized by any means unless substantial evidence of them belonging to MtGox, Tibanne or Mark can be demonstrated).