Mt. Gox Creditors, Investors Agree to Try to Revive Bitcoin Exchange
Deal Would Give Creditors a 16.5% Stake in the Future Company
By MICHAEL J. CASEY CONNECT
Updated April 29, 2014 12:10 a.m. ET
Lawyers for creditors involved in two proposed class-action lawsuits against Mt. Gox have reached an agreement to support a group of U.S. investors' bid to revive the bankrupt bitcoin exchange, an agreement that would give the creditors a 16.5% stake in the prospective future company.
The creditors' lawyers filed details of the settlement, which also involved Mt. Gox's former owner and its former chief marketing officer, with a District Court in Chicago on Monday.
At a separate hearing before the judge Thursday, they are expected to present their case for that agreement, which in addition to the equity stake includes prorated disbursements out of Tokyo-based Mt. Gox's holdings of 200,000 bitcoins and traditional currency. The terms would apply to all creditors worldwide, though it was signed on behalf of U.S. and Canadian members of the proposed class actions. If the U.S. court approves the plan, the investor group, Sunlot Holdings, would then seek approval of the Japanese court overseeing the bankruptcy.
The creditors and the buyout group hope their deal will halt the liquidation proceedings launched by Mt. Gox earlier this month, which was given the go-ahead last week by the Japanese court, naming lawyer Nobuaki Kobayashi as the bankruptcy trustee to oversee that process.
The Sunlot consortium has repeatedly argued that liquidation would result in a much smaller recovery value for creditors than would its plan to revive the exchange and share trading profits with those former exchange customers. John Betts, Sunlot chief executive, has said the bid is aimed not only at improving the outcome for those creditors but also in sending a message that the "bitcoin community looks after its own."
According a news release from Sunlot, the consortium along with Jed McCaleb, who founded Mt. Gox, and former Mt. Gox chief marketing officer, Gonzague Gay-Bouchery, agreed under the deal to help the plaintiff creditors in their continued case against Mt. Gox's majority owner, Mark Karpelès, and his holding company, Tibanne Co. Ltd.
Mr. McCaleb sold a majority stake in Mt. Gox to Mr. Karpelès in 2011 but retained a 12% stake.
In an email, Mr. Karpelès said, "we provide our support to the sponsor chosen by the [Japanese] court and supervisor, whichever ends up being chosen. The court and the supervisor will be choosing the sponsor that will be most beneficial to the creditors."
Edelson Managing Partner Jay Edelson, the lawyer who represented the U.S. creditors covered by the proposed class action said, "Liquidation would have been a disaster for the U.S. class. It would have taken significant time, the assets would have been depleted, and the U.S. consumers would have gotten pennies on the dollar."
Negotiations between the creditors and the parties to the agreement were conducted under the oversight of Retired District Judge Wayne Andersen, of JAMS, who served as an independent mediator.
In addition to the lawyers for the U.S. and Canadian class-action creditors who directly approved the settlement, lawyers representing a separate international group were also engaged in the negotiations. The proposed class involved in the negotiations account for about 50,000 of the "digital wallets" from which coins are missing, out of a total 127,000, according to the Sunlot news release.
Mt. Gox, which once accounted for 80% of all bitcoin trading, filed for bankruptcy protection Feb. 28 and said hacking attacks and software glitches had caused it to lose 850,000 bitcoins, worth about $500 million at the time, including 750,000 belonging to customers. Since then, it announced that it had recovered 200,000 of those but the remaining 550,000 coins, now worth about $240 million, continue to be a controversial issue. Some believe that with a full audit of Mt. Gox's books and an investigation of the bitcoin network's universal ledger of transactions, it should be possible to trace those missing bitcoins.
The Sunlot consortium, which includes bitcoin entrepreneur Brock Pierce as well as venture capital investors Matthew Roszak and William Quigley, first entered into negotiations with Mr. Karpelès in February at a time when the embattled Mt. Gox had frozen customer accounts. The subsequent bankruptcy declaration stymied those talks but the group continued to lobby Mr. Karpelès, who eventually agreed to their buyout offer and sent a letter to the court supporting their proposal.
The move to liquidate signaled a charge of course for Mr. Karpelés and forced the group to launch a last-ditch campaign to keep their bid alive. This included setting up a website, savegox.com, where thousands of burned Mt. Gox customers were invited to voice their preference for the rehabilitation plan.
Write to Michael J. Casey at
michael.j.casey@wsj.com
