Speculation the US government has control of MtGox cold wallet [reddit]

[bennybong]

Taken from Reddit:

The last thing MagicalTux has said in public IRC to date was:

<MagicalTux> Hrumph, problem is that we still have some pending issues since early 2013 that hinder our communication efforts
From this verified paste (approx 2 days ago):

03:12 <@ne0futur> when I were insisting , telling mark to disclose stuff
03:12 <@ne0futur> saying things like "fuck the lawyers, disclose"
03:12 <@ne0futur> he answered me once
03:13 < shadylog> ne0futur: with...
03:13 <@ne0futur> 2014-02-20 10:40<MagicalTux> le gouv. US veut pas qu'on disclose hein
03:13 <@ne0futur> US gov doesnt want us to disclose
From the (likely real) chat between Jon Fisher and Mark:

[10:58] <JonWickedFire> Is that Crisis Strategy Draft even legit?
[11:04] <MagicalTux> more or less
[11:05] <MagicalTux> as the name suggests it’s a draft, and it’s a bunch of proposals to
deal with the issue at hand, not things that are actually planned and/or done

[12:02] <JonWickedFire> How much did you lose yourself?
[12:04] <MagicalTux> Well, technically speaking it’s not “lost” just yet, just temporarily unavailable
From this news article:

Recent testimonies by federal agencies indicate that the account seizures were in fact related to the multi-year pursuit of Silk Road operators, rather than a crackdown on money transmission infractions for their own sake.

and

Looking backwards, it’s clear why the Silk Road connection couldn’t be noted in any court filings that would become public. If federal agents made known at the time that they were actively pursuing Silk Road it could interfere with their ongoing investigation. This also means that, at least in this case, it appears money transmission laws were enforced on Mt. Gox not simply for their own sake, but to gain insight and hinder the capital flow to Silk Road without exposing the larger goal of shutting down the international narcotics marketplace.

Maybe I'm insane but here's a possibility: A clear link was established between Silk Road and Mt. Gox. Significant portions of the cold wallet are now frozen. (Yes, the US still has a lot of pull in other countries eg Japan. Think Kim Dotcom. Plus Gox is a registered entity in the United States.)

Transaction Malleability did steal a portion of bitcoins, but not the insane 99.7% amount. Gox is now unable to refill their hot wallet due to the seizure. They are now aiming for an acquisition to cover the funds stolen by transaction malleability, however a gag order prevents Gox from disclosing exactly why the funds are missing, hence for the time being they blame it on Transaction Malleability.

Gox likely had a tiered system of "hot wallet", "cold wallet" and "coldest wallet". It's possible the US Gov took control of the "coldest wallet", which would contain the largest amount.

Gox is possibly now working on some type of 3-way full tilt poker style acquisition deal (Gox, new owners, US Gov) which will result in funds being returned plus a drop in pending charges (which could be sealed).

All pure speculation, but I'm curious as to if you guys can think of anything else that ties this theory together?

EDIT:

<!-- insert acq deal here -->

Would also work with the theory of a gag order. If Mark is still in control of the website (which it seems like he is), then there is no way he would put that there by accident. That, is someone trying to get a message out to the community while he's not allowed to. An HTML comment, a 3-letter acronym instead of the full word... sounds like he wants plausible deniability for that 'mistake'.

EDIT2:

From MagicalTux on bitcointalk:

On average 98% of customer bitcoins are held in cold storage

and

Offline wallets are generated from an offline system and kept in paper format in three separate locations

EDIT3:

From MagicalTux on bitcointalk:

Someone asked:

back to JPY....a nightmare for the US to try and enforce anything at all or at least quickly and not always on the friendliest terms with regional neighbors

To which, MagicalTux replied:

Japanese government is friendly to US, and also implements things such as FACTA. Also the US government can pressure any bank worldwide by threatening of cutting them off USD. A bank in any country that can not transfer USD anymore is of no use to anyone. US government has been doing this so far to get accounts held by "terrorists" (people linked to North Korea, mafia, actual terrorists, etc) and while Bitcoin is still too small to get this kind of response, it's a good idea to stay friendly with the US govt. at this point and let Bitcoin grow and gain in legitimacy.

Once again shows his willingness and desire to cooperate with the US Gov.

EDIT4:

August 2012 Mt. Gox Company Overview

Cold Storage: 90-98% of Bitcoins entrusted to Mt.Gox are safely stored offline

EDIT5:

News Article shortly after DHS seizure

Bitcoin Exchange Mt. Gox Tightens Identity Requirement

and

Mt. Gox itself has faced new legal problems, too. Earlier this month Mt. Gox’s American intermediary for trading dollars and Bitcoins known as Mutum Sigullum had its accounts seized by Homeland Security Investigations for failing to register as a money transmitter.

and

Until now, Mt. Gox has tried to strike a careful balance between anonymity and money laundering laws, allowing anyone making trades under $1,000 to do so without a verified account and only demanding identification for larger trades. But when I spoke with the company’s Tokyo-based chief executive Mark Karpeles earlier this year, he emphasized that his first priority is to legitimize Bitcoin as a mature currency, not to preserve its anonymity.

EDIT6:

Posted just 10 months ago by Mt. Gox

Someone asked:

Does mtgox run as a fractional exchange? Meaning, do you have 100% of the bitcoins your users have deposited in your system?

and Gox replied:

NO. Everything is accounted for (BTC and money). Fractional reserve is absolutely against our principles. In fact 90~95% of BTC are held in cold storage.

EDIT7:

Were they running a fractional reserve? OR is the missing $22.5 million frozen?

EDIT8:

Full credit for the following goes to /u/califreshed

Someone else pointed out that in the chat between John Fisher & Mark that you linked, his exit line was:

[12:07] <JonWickedFire> Anything else you'd like to say to everyone before all the pissed off people start going nuts, even more...?
[12:09] <MagicalTux> not really
[12:09] <MagicalTux> maybe just a link? something like that: Why do we fall? - 9GAG
With the 9Gag being an image site that he linked to http://9gag.com/gag/a442vZw taken on face value its just a movie quote, but what if using 9GAG was his attempt to send out a message again, with plausible deniability if called out on it?

Source: http://www.reddit.com/r/BitcoinMarkets/comments/1z2xo5/speculation_the_us_government_has_control_of_goxs/



Seems fairly plausible to me. Discuss...

[davepsilon]

Interesting, but seems like a stretch. 

It does seem suspicious that such a huge percentage of cold storage could be drained without notice, there could be some merit to that line of inquiry, but I don't think it is at the hidden behest of the US Government.

[Jeronimus]

Interesting, but seems like a stretch.  

It does seem suspicious that such a huge percentage of cold storage could be drained without notice, there could be some merit to that line of inquiry, but I don't think it is at the hidden behest of the US Government.

No, that's not a stretch at all. This is among one of the most believable theories along with the theory of other powers interested in harming BTC have used Karpeles as a tool to execute this or blackmailed him to do this.

A stretch are theories which involve incompetence not realizing there are not enough BTC in cold storage + hot storage to back up the BTC funds in the MtGox server database for so long. This would reduce Karpeles and the MtGox team's IQ to less of fruit.

A stretch are theories that involve a scam artists managed to steal the bitcoins or malleability being the reason, which would show in many cloned transactions going out from MtGox easily to be followed via the blockchain if Karpeles released the books to some of the trusted experts in the community.
There is a reason why he does not so, and why he does not beg the trusted experts in the community, like antonopoulos, gmaxwell and the like to visit him and check his books.

A stretch is to believe that even if the 750k were gone, the exchange had no means to get those easily back via arbitrage it could have done and use a bot to trade on their exchange at no fees, allowing them to profit from the smallest price differences in buy/sell. As well as many other countless ways to manipulate using the exchange powers when you are desperate to get out of fractional reserve operation.

This leaves us only with a few options, all of which involve there having been some intentional attempt to harm BTC, with Karpeles either willingly participated in or having been blackmailed so badly, he saw no other way out than to succumb.

This is no excuse to Karpeles, knowing how this would mean the destruction of thousands of lives out there, however i am not sure myself how i would react if some men well dressed in black coats (NSA/FBI/CIA) visited me and made it clear that it is either their way or the highway...


edit: Adding to the above. It is my true belief (i could be wrong) that Karpeles is in real danger to fear of his life if the above is anywhere near accurate. Because if the above is close enough to the truth, they will want to get rid of all tracks, especially Karpeles and the gox records/books.
The only way to get rid of this risk, would be to release all information publicly as fast as possible. Or at least give the information to someone trusted in secret who would release it in such an event, and make it known to those powers.

[Definit]

More or Less...

[btc237ftw]

Sounds like this theory works with all the details we have heard up until now except for what Mark said about the leaked docuemnt (he said it is more or less legit) - and in the document it says the coins are "lost".

[Jeronimus]

Sounds like this theory works with all the details we have heard up until now except for what Mark said about the leaked docuemnt (he said it is more or less legit) - and in the document it says the coins are "lost".

He also said he has coins in there he does not have access to. Which could very well be interpreted as the US gov or some of it's agencies having confiscated those coins he is being uncertain of if he will ever get access back to them.

edit: along with a gag order restraining him from making this information public

[Definit]

http://www.pcworld.com/article/2095980/trial-for-alleged-silk-road-creator-ross-ulbricht-set-for-november.html

Interestingly enough this came out in the same time frame as Gox troubles ensued.

[itsunderstood]

One thing also:  In the chat, Mark K. says "things could not be better" ...I thought that was a bit disconnected, however, in light of the above, it seems maybe he is a captured piece, and therefore

what this means is that Gox was captured and then run by the you-know-whos, as they do.  So, they puppeted him.  In these terms, his statement that "everything could not be better" would not seem so incongruos with the facts: dude you're fucked, how the hell could things not be better?  So he is 98% a captured actor, imo.

[bitcoinminer]

One thing also:  In the chat, Mark K. says "things could not be better" ...I thought that was a bit disconnected, however, in light of the above, it seems maybe he is a captured piece, and therefore

what this means is that Gox was captured and then run by the you-know-whos, as they do.  So, they puppeted him.  In these terms, his statement that "everything could not be better" would not seem so incongruos with the facts: dude you're fucked, how the hell could things not be better?  So he is 98% a captured actor, imo.

I took his statement as sarcasm like "Yeah things are GREAT".

This is an interesting theory.  Maybe Mark was taking recreation trips to Thailand, and got hemmed up by some super secret government guys and it's this whole giant conspiracy...

...or maybe he's just an incompetent fuckin' moron, or a thief.

Occam's Razor and all that.

[Nagle]

This is almost certainly bullshit. When the U.S. Government seizes something, it's public knowledge. There are court documents. There's usually a press release. There are public lists of seized items. The FBI can't put a "gag order" on a French citizen in Japan anyway.

More likely, it's more lies from Mark Karpeles. He's repeatedly blamed others for his own failure. Over the last two years, he's blamed "hackers" doing a denial of service attack against Mt. Gox. He's blamed banks for not being able to handle the "large number" of transactions Mt. Gox generated. He promised a "two week delay" on US dollar withdrawals which never ended, over half a year later. He's blamed a technical problem that didn't affect other exchanges for more than three days for a permanent shutdown on Bitcoin withdrawals. Most readers on here can add to this list.

[bitcoinminer]

This is almost certainly bullshit. When the U.S. Government seizes something, it's public knowledge. There are court documents. There's usually a press release. There are public lists of seized items. The FBI can't put a "gag order" on a French citizen in Japan anyway.

More likely, it's more lies from Mark Karpeles. He's repeatedly blamed others for his own failure. Over the last two years, he's blamed "hackers" doing a denial of service attack against Mt. Gox. He's blamed banks for not being able to handle the "large number" of transactions Mt. Gox generated. He promised a "two week delay" on US dollar withdrawals which never ended, over half a year later. He's blamed a technical problem that didn't affect other exchanges for more than three days for a permanent shutdown on Bitcoin withdrawals. Most readers on here can add to this list.

But he said! He said!

[LarryLiu]

This is almost certainly bullshit. When the U.S. Government seizes something, it's public knowledge. There are court documents. There's usually a press release. There are public lists of seized items. The FBI can't put a "gag order" on a French citizen in Japan anyway.

More likely, it's more lies from Mark Karpeles. He's repeatedly blamed others for his own failure. Over the last two years, he's blamed "hackers" doing a denial of service attack against Mt. Gox. He's blamed banks for not being able to handle the "large number" of transactions Mt. Gox generated. He promised a "two week delay" on US dollar withdrawals which never ended, over half a year later. He's blamed a technical problem that didn't affect other exchanges for more than three days for a permanent shutdown on Bitcoin withdrawals. Most readers on here can add to this list.

These poor helpless Gox customers are just desperate, but understandable. For the amount of money they can't get back there is not even a sound explanation.

[Jeronimus]

This is almost certainly bullshit. When the U.S. Government seizes something, it's public knowledge. There are court documents. There's usually a press release. There are public lists of seized items. The FBI can't put a "gag order" on a French citizen in Japan anyway.

i ll be there to quote you on this when we have more details of what really happened.

You should look a bit into history and who were the losers of WW2 and how there are over 50k US troops in various military bases all around japan. How many military bases does japan have in the US?
Does that not ring "occupation" within you?
Another good example is Germany.

If not the FBI, there is also the NSA and CIA, and the CIA has been operating for quite some time now in various nations.

If you think the US cannot control the Japanese gov in various ways, i have a bridge to sell to you.

[Epinnoia]

I would not doubt it.  They're tracking activity on the 500k coins that were stolen back in 2011.  I think Mark is dipping into his rainy day fund...

Those coins 'from 2011' are interesting -- those are most likely the coins Karpeles swept out of people's accounts and called it a hack. He leaked that password file into the wild to establish plausible deniability -- not unlike that recent 'crisis paper' leak. And then just swept them right into his own rainy-day wallet. Remember the 500,000 BTC that went missing? What year was that... 2011. Those early users got in before passwords were salted. And never changed their passwords after the salting routine was added. Who better than Mark would know how best to exploit that? The evidence would be quite simple... How many of those unsalted accounts lost their coins? I'll bet they all did. Though I wouldn't put it past him to leave the ones with $0.50 or less alone. He got greedy. And even though the password file was leaked, hackers would have still needed time to brute-force them. And there wasn't enough time -- not for all of them!! Mark did it, and made it look like it was a hack. It really couldn't be any clearer.

https://www.facebook.com/groups/cryptospeculators/
http://www.dailytech.com/Inside+the+MegaHack+of+Bitcoin+the+Full+Story/article21942.htm

[itsunderstood]

[...]

...or maybe he's just an incompetent fuckin' moron, or a thief.

Occam's Razor and all that.

Sure.

One thing about Occam's Razor is the "all things being equal" preconcept to it.  So, if all things are not equal, then it cannot be applied.  The simplest answer is only true if all data are equal, and they rarely are.  But yes, captured, stupid, evil thief all could apply.

But it explains his passive "you can't touch me" mentality, because thats how a captured pawn like Sabu acts after capture, for example.

[TSE]

This is no excuse to Karpeles, knowing how this would mean the destruction of thousands of lives out there, however i am not sure myself how i would react if some men well dressed in black coats (NSA/FBI/CIA) visited me and made it clear that it is either their way or the highway...

allways take the opportunity and spit in their face.

more than this it makes sense. i wondered about the chats beeing puplished. they didnt fit in b4 explanations

[tvbcof]

...
Seems fairly plausible to me. Discuss...

Pretty much point by point the hypotheses I've been throwing out for a quarter or two now.  Hopefully a least a handful of people read what I wrote, thought about it, limited there exposure to Mt. Gox as I did, and are now happy damn happy for it.  Obviously many did not.  Shrug.

[clownius]

This is almost certainly bullshit. When the U.S. Government seizes something, it's public knowledge. There are court documents. There's usually a press release. There are public lists of seized items. The FBI can't put a "gag order" on a French citizen in Japan anyway.

More likely, it's more lies from Mark Karpeles. He's repeatedly blamed others for his own failure. Over the last two years, he's blamed "hackers" doing a denial of service attack against Mt. Gox. He's blamed banks for not being able to handle the "large number" of transactions Mt. Gox generated. He promised a "two week delay" on US dollar withdrawals which never ended, over half a year later. He's blamed a technical problem that didn't affect other exchanges for more than three days for a permanent shutdown on Bitcoin withdrawals. Most readers on here can add to this list.

These poor helpless Gox customers are just desperate, but understandable. For the amount of money they can't get back there is not even a sound explanation.

Actually as a poor helpless mtgox customer (who thank god can live easily without the small amount of coin i lost) this theory scares me even more than mtgox loosing a fair chunk of the money.  The USG can and does make life hell for people with little or no reason.  Just ask anyone caught up on Megauploads downfall.  The USG just said one day fuck everyone and the files are simply gone.  They still havent bothered putting together much of a case.

If mtgox simply fucked up i have a chance of some recovery.  Be it via a buyout or bankruptcy

If the USG has the cold storage my chances of ever seeing even a fraction of a bitcoin are exactly zero.  They can and will drag any case on for decades and hide behind the full force of law to stop me making any recovery action.

If you think they wouldnt LOVE to fuck Bitcoin over completely your kidding yourself.  Any excuse will do.  Legal doesnt worry them any more especially if you throw in the war on drugs or terrorism.  Two things they will surely link to Bitcoin at every opportunity.

If i had significant BTC holdings right now id worry.  Especially if they are sitting on any exchange or online wallet system in a country that wont immediately tell the USG to fuck off.  the second i heard that mtgox had received a subpoena from the USG in the month before it went down i suspected they were highly involved in causing its shut down.

[nutildah]

MagicalTux was back online 4 days ago, have a looksie:

https://bitcointalk.org/index.php?action=profile;u=2134

Wonder if its him, a hacker or an account buyer. Whatever the deal is they're just lurking.