Bitcoinica MtGox account compromised

[ninjarobot]

I think that the position of the Intersango guys was that weren't technically general partners at the time of the Rackspace intrusion because the paperwork for establishing Bitcoinica Consultancy hadn't been completed and that therefore they had neither any liability for the intrusion nor any authority to initiate the claims process.  Tihan's position was that they did have both liability and authority and that not completing the paperwork would be regarded as an attempt to avoid that liability.

Agreed. I appears Tihan set up CORE CREDIT LIMITED as the GP on 2012/02/09 (*1) However he did not find an actual party willing to act as GP until sometime before 2012/04/24 when the Bitcoin Consultancy signed the 'Bitcoinica limited partnership agreement' (*2). After this contract was signed the Bitcoin Consultancy group was pretty clear in Donald's announcement that they were acting as the new operators and managing directors of Bitcoinica (*3):

While Bitcoinica had some previous security concerns, namely where the attack on the Linode cloud hosting provider generated them a loss of 40k BTC, Bitcoinica has fully recovered from the loss and no longer depends so heavily on 3rd party platforms. The Bitcoinica reigns have been taken up by the recognized development group called the Bitcoin Consultancy which have a record of solid security in the tumultuous world of Bitcoin. Despite their growth and their recent announcement, Tong is still a developer for Bitcoinica.

However Zhou kept operating the site on a daily basis in practice and the Bitcoin Consultancy guys failed to supply the NZ Companies office with valid docs to reflect their director status and so technically the GP was not fully formed:

We kept sending the paperwork back saying it's incomplete and there's problems, so when the initial compromise happened, the company was not yet fully formed.

The problem is that Bitcoinica Consultancy only begun the process of being formed when the attack happened. The paper work was not completed and we weren't acting as GP. Tihan is asking us to finish completing the formation of Bitcoinica Consultancy first, while we are asking for legal authorisation to conduct payments on their behalf.

Although Bitcoinica Consultancy was not fully formed in terms of documentation, the Bitcoin Consultancy guys were assumed to bear all liabilities of Bitcoinica LP ever since the takeover on April 24.

Bitcoinica Consultancy has three people including two technical experts. They have been working in Bitcoinica for more than one month. And they're assumed to bear all liabilities of Bitcoinica LP.

Finally on May 30 the General Partner 'CORE CREDIT LIMITED' was renamed to 'BITCOINICA CONSULTANCY LIMITED' (*4) and a couple of days ago Genjix mentioned that they *did* finalize the formation of BITCOINCA CONSULTANCY so that would imply that they *are* the Bitcoinica GP at least at this point in time.

We had no responsibility to take on payments, but we did (and finalised the formation of Bitcoinica Consultancy to do so).

In the end it seems they have been playing a game of hot potato over who would be responsible at the expense of their customers. Everybody in Bitcoinica LP has been too busy covering their collective asses and pointing fingers at each other. Even at this late stage they have not been able to put on a united front and take decisive action in the best interest of their customers. There have been no police reports, no official updates on their website and previous promises such as 'All withdrawal requests will be honored.' are demonstrably false. Things have gone from bad to worse and hopefully we finally have reached rock bottom now so salvage operations can begin.

References:
(*1) http://www.societies.govt.nz/scanned-images/06/BC10060962006.pdf
(*2) https://bitcointalk.org/index.php?topic=84042.msg953326#msg953326
(*3) http://bitcoinmedia.com/first-licensed-advanced-trading-platform-for-bitcoin/
(*4) http://www.business.govt.nz/companies/app/ui/pages/companies/3715077/documents

[repentance]

Things that make you go "hmmmm".

Probably unrelated, but it's one hell of a coincidence that the same accountant who set up the other NZ entities associated with Bitcoinica Consultancy LP recently set up another entity which just happens to have the same name as the presumed original buyer of the Bitcoinica domain and IP.

http://www.business.govt.nz/companies/app/ui/pages/companies/3837998

Bitcoinica Consultancy Ltd's record now shows "Notification of director appointment(s) pending".

[sadpandatech]

Things that make you go "hmmmm".

Probably unrelated, but it's one hell of a coincidence that the same accountant who set up the other NZ entities associated with Bitcoinica Consultancy LP recently set up another entity which just happens to have the same name as the presumed original buyer of the Bitcoinica domain and IP.

http://www.business.govt.nz/companies/app/ui/pages/companies/3837998

Bitcoinica Consultancy Ltd's record now shows "Notification of director appointment(s) pending".

no clue who that guy is but he keeps himself pretty busy; http://www.business.govt.nz/companies/app/ui/pages/companies/1217550/shareholdings

[guruvan]

Next up, Intersango balances will be cleared if not gone allready.

I love these business strategies, divide and conquer at its finest hour.

what about intersango? is it not legit now?

Do you really want to wait around to find out?

This.

Why would you give your hard earned money to people who have shown a lack of responsibility?

Insanity is defined as performing the same actions that have failed in the past and expecting different results.

[ninjarobot]

Things that make you go "hmmmm".

Probably unrelated, but it's one hell of a coincidence that the same accountant who set up the other NZ entities associated with Bitcoinica Consultancy LP recently set up another entity which just happens to have the same name as the presumed original buyer of the Bitcoinica domain and IP.

http://www.business.govt.nz/companies/app/ui/pages/companies/3837998

Bitcoinica Consultancy Ltd's record now shows "Notification of director appointment(s) pending".

'WENDON GROUP LIMITED (3837998)' - That is an interesting find! It could indeed be a coincidence (Heaslip is involved in over 44 companies) but it is good to see Wendon's name appear in a related context.

Another thing I noticed is that Christopher Heaslip also registered PUSHPAY in a similar fashion and Tihan is linked to that one as well:
http://www.business.govt.nz/companies/app/ui/pages/companies/3486194
https://getpushpay.com/
https://angel.co/pushpay-limited
https://angel.co/tseale
https://angel.co/chris-heaslip

EDIT: I see this connection was already made earlier here: https://bitcointalk.org/index.php?topic=81045.msg901125#msg901125

[repentance]

Things that make you go "hmmmm".

Probably unrelated, but it's one hell of a coincidence that the same accountant who set up the other NZ entities associated with Bitcoinica Consultancy LP recently set up another entity which just happens to have the same name as the presumed original buyer of the Bitcoinica domain and IP.

http://www.business.govt.nz/companies/app/ui/pages/companies/3837998

Bitcoinica Consultancy Ltd's record now shows "Notification of director appointment(s) pending".

no clue who that guy is but he keeps himself pretty busy; http://www.business.govt.nz/companies/app/ui/pages/companies/1217550/shareholdings

He's a taxation specialist who sets up NZ companies for people (NZ is a tax haven for foreign investors).  It's not especially unusual for accountants to have "shelf" companies already set up and ready to go as the need arises.  They're set up with a name, fuck all capital, and the accountant acting as director.  When someone wants a company in a hurry, they can basically change all the details after the fact - name, directors, shareholders.  The risk for the accountant is that as long as he's still listed as director, he has some liability if the company trades recklessly or while insolvent.

Another thing I noticed is that Christopher Heaslip also registered PUSHPAY in a similar fashion and Tihan is linked to that one as well:
http://www.business.govt.nz/companies/app/ui/pages/companies/3486194
https://getpushpay.com/
https://angel.co/pushpay-limited
https://angel.co/tseale
https://angel.co/chris-heaslip

It's not that unusual to have a lot of overlap in the world of venture capital.  You get a lot of the same people investing in a range of different projects, but they're separate legal entities even though some of the individuals might be the same.  NZ has quite a few accounting firms which link up VCs with projects.  Someone who's soliciting capital for one project can be providing it for another.  There's a New Zealand VC who's registered three Bitcoin related entities this year but I've never heard of either him or the companies, so I suspect he's waiting for the appropriate project and other investors to launch them.

Most of this isn't going to matter in terms of Bitcoinica users getting their money back.  Still, the back story since Zhou sold the domain name and IP is pretty intriguing in itself.

[Bitcoin Oz]

Maybe this accountant needs to get a summons.

[JoelKatz]

Bitcoinica LP is now undeniably insolvent and that's a game changer.  It's extremely unlikely that any lawyer would advise an insolvent entity to try to handle the claims process themselves - the risk of them fucking it up in some way is just too great.

I don't know what law applies to Bitcoinica, but typically until there's a formal declaration of insolvency, companies are still obligated to pay their debts. Their continuing failure to return depositor's funds is a continuing breach of their obligations to their depositors. I cannot believe any lawyer would say, "continue to breach your fiduciary duties". In some jurisdictions it can be a criminal offense to fail to formally declare insolvency and to continue to breach obligations.

[repentance]

Maybe this accountant needs to get a summons.

I suspect that the most relevant thing in all of this is going to be the partnership agreement.  It would have specified everyone's roles and the date those roles commenced.  When corporate information changes, you generally have a specific time period in which to lodge notice of those changes - you don't have to do it immediately.  I guessing the reason that the Bitcoinica Consultancy records now show "appointment of directors pending" is because those records are now in the process of being changed.  I'm guessing that the partnership agreement had been signed before the hack but the director's consent forms hadn't - that was the paperwork which Tihan was pushing them to complete and which he said if they didn't would be an abandonment of their legal responsibilities (which were assumed via the signed partnership agreement).

Chris Heaslop could certainly provide information about exactly what formalities happened and when, but it sounds like everyone involved already knows where the paperwork was up to at any given time and they're only arguing about what it means (understandably so, given that general partners have a fiduciary duty to the limited partnership itself as well as a general duty not to trade recklessly or while insolvent and breaching that duty can lead to personal) liability.

There are a lot of intriguing questions remaining, but I suspect that the answers won't directly affect users - although they may well be relevant to legal action between the principals.  I do hope that once the facts are all known, someone creates a flowchart - I'm a big fan of Seconds from Disaster and this his been one of those perfect storms of seemingly minor issues ending in calamity.

[PatrickHarnett]

Maybe this accountant needs to get a summons.

I suspect that the most relevant thing in all of this is going to be the partnership agreement.  

Still watching with interest.  Not sure what you mean by "partnership agreement" as the NZ entity is simply a limited liability company with a single director/shareholder.  The provisions of the Companies Act 1993 will apply with regard to duties of directors.

BITCOINICA CONSULTANCY LIMITED (3715077)

[repentance]

I don't know what law applies to Bitcoinica, but typically until there's a formal declaration of insolvency, companies are still obligated to pay their debts. Their continuing failure to return depositor's funds is a continuing breach of their obligations to their depositors. I cannot believe any lawyer would say, "continue to breach your fiduciary duties". In some jurisdictions it can be a criminal offense to fail to formally declare insolvency and to continue to breach obligations.

The problem is them giving any preferential treatment to unsecured creditors.  Insolvent companies are generally wound up by third parties to ensure that all payments are made in accordance with the formula laid down by law, that assets are liquidated for the benefit of all creditors, and that transactions in the look-back period are reversed where appropriate.  

While I suspect that some form of formal insolvency is now inevitable, I would expect both the limited and general partners to be taking legal advice on the most appropriate type of insolvency, and I would expect that advice to include "don't touch the assets for any reason" until the next legal step has been determined (for all we know, the initial steps towards insolvency may already have been taken - there's some paperwork involved before creditors are formally notified and asked to lodge claims).  They should never have attempted a DIY claims process after the Rackspace compromise - at the very least, it should have been handled by their accountant - and they most definitely shouldn't attempt it now.  

Still watching with interest.  Not sure what you mean by "partnership agreement" as the NZ entity is simply a limited liability company with a single director/shareholder.  The provisions of the Companies Act 1993 will apply with regard to duties of directors.

Bitcoinica LP is a limited partnership, with a general partner (Bitcoinica Consultancy LTD) and a limited partner (Tihan's fund plus a minority limited partner from what we can tell).  The partnership agreement matters because it determines the date on which Bitcoinica Consultancy LTD became the general partner of Bitcoinica LP, assuming all liability.  The issue isn't the general duties of the directors of Bitcoinica Consultancy LTD, it's whether Bitcionica Consultancy LTD was acting as the general partner of Bitcoinica LP when the events happened - if the partnership agreement had already been signed (and we've been told it had), then they're legally liable whether or not the formation of Bitcoinica LP itself was complete (ie, the director's consents had been signed and lodged).

The issue of whether the directors of Bitcoinica Consultancy LTD have acted in a manner which gives rise to personal liability is yet another matter.

[PatrickHarnett]

My confusion was not taking the relevant jurisdiction to the different entities as I thought you were talking about the NZ one.  The LP is in the UK (as a working assumption).

[repentance]

My confusion was not taking the relevant jurisdiction to the different entities as I thought you were talking about the NZ one.  The LP is in the UK (as a working assumption).

There are two NZ entities Bitcoinica Consultancy Limited and Bitcoinica Limited Partnership (which is wholly operated by Bitcoinica Consultancy Ltd).

Bitcoinica LP is a New Zealand Limited Partnership which is wholly operated by Bitcoinica Consultancy LTD a New Zealand registered company.

https://bitcointalk.org/index.php?topic=81045.msg902253#msg902253

Bitcoinica LP is a New Zealand Limited Partnership.

Core Credit LTD is a New Zealand Limited Company and the General Partner of Bitcoinica LP.

Core Credit LTD was renamed to Bitcoinica Consultancy LTD significantly after the events occurred.

https://bitcointalk.org/index.php?topic=84042.msg1022206#msg1022206

Intersango Ltd and Bitcoin (without the "ica") Consultancy Ltd are both UK limited companies.

Significantly, the partnership agreement must be signed before the limited partnership can be registered - the agreement itself establishes the limited partnership prior to registration.

http://www.business.govt.nz/companies/learn-about/other-entities/limited-partnerships/faqs/copy4_of_introduction

It's not a structure that's really used much in Australia but NZ has set it up in a way which encourages overseas investment with favourable tax treatment.

[tbcoin]

Then... where is the 66% of my claim?


Genjix it's time for an update ...

[RicePicker]

At this point I am hoping they at least finish paying out the 50%. This hacking incident could have been avoided if they decided to pay everyone earlier in the game. They basically sat on thousands of bitcoins for 2 months telling everyone they did not want any mistakes to occur during the claim process. Evidently now they have lost 30% of their money. This is completely retarded. If they weren't so overly paranoid during the claim process they might have lost 5%-10% through overpaying. Even if they were overpaying, I consider it interest with them holding on to so many customers funds for so long. Now they lost 30% to some random hacker.     

[kronosvl]

At this point I am hoping they at least finish paying out the 50%. This hacking incident could have been avoided if they decided to pay everyone earlier in the game. They basically sat on thousands of bitcoins for 2 months telling everyone they did not want any mistakes to occur during the claim process. Evidently now they have lost 30% of their money. This is completely retarded. If they weren't so overly paranoid during the claim process they might have lost 5%-10% through overpaying. Even if they were overpaying, I consider it interest with them holding on to so many customers funds for so long. Now they lost 30% to some random hacker.     

difference is that 5-10% would have been from their money. 30% I'm not so sure will be lost from their money, more likely from users' money

[Maged]

At this point I am hoping they at least finish paying out the 50%. This hacking incident could have been avoided if they decided to pay everyone earlier in the game. They basically sat on thousands of bitcoins for 2 months telling everyone they did not want any mistakes to occur during the claim process. Evidently now they have lost 30% of their money. This is completely retarded. If they weren't so overly paranoid during the claim process they might have lost 5%-10% through overpaying. Even if they were overpaying, I consider it interest with them holding on to so many customers funds for so long. Now they lost 30% to some random hacker.     

That's what really gets at me with this whole process. If they would have just let Zhou handle the payouts with his imperfect methods, we'd all have had more money in the end, and the Intersango guys would not have wasted entire months manually processing the claims.

[wirmola]

At this point I am hoping they at least finish paying out the 50%. This hacking incident could have been avoided if they decided to pay everyone earlier in the game. They basically sat on thousands of bitcoins for 2 months telling everyone they did not want any mistakes to occur during the claim process. Evidently now they have lost 30% of their money. This is completely retarded. If they weren't so overly paranoid during the claim process they might have lost 5%-10% through overpaying. Even if they were overpaying, I consider it interest with them holding on to so many customers funds for so long. Now they lost 30% to some random hacker.     

Looks like Genjix has some more important stuff to do at the moment...

[Jake]

We regret to inform you

You don't give 2 flying fucks, just keep waving in your Ferrari! 

[RicePicker]

At this point I am hoping they at least finish paying out the 50%. This hacking incident could have been avoided if they decided to pay everyone earlier in the game. They basically sat on thousands of bitcoins for 2 months telling everyone they did not want any mistakes to occur during the claim process. Evidently now they have lost 30% of their money. This is completely retarded. If they weren't so overly paranoid during the claim process they might have lost 5%-10% through overpaying. Even if they were overpaying, I consider it interest with them holding on to so many customers funds for so long. Now they lost 30% to some random hacker.    

difference is that 5-10% would have been from their money. 30% I'm not so sure will be lost from their money, more likely from users' money

They would have lost 5-10% of their personal money, but bitcoinica's reputation was salvageable within the first month of the incident. Now even though they lost 30% of their customer's funds, they have lost their capital that was invested into bitconica. I do not believe the majority of the bitcoin population would ever deal with bitcoinica again. I don't even want to touch intersango because of this incident.