Class action Litigation vs. Bitcoinica Consultancy LTD & Intersango LTD

[repentance]

With the new admitted loss of claim funds the odds of getting any non-lawyer driven satisfactory conclusion is slim to none. Continuing to spend money of an insolvent company is a very poor decision, really they should be voluntarily contacting the relevant NZ bodies to wind down the company.

This should have been done even before the latest hack, but this community was vocally against turning the refund process over to an independent third party and the principals involved were also reluctant to take that path.

One way or another, this company will end up being liquidated.  Whether it's by the Official Assignee or by a private liquidator depends on who moves first.  The opportunity for it to be placed under administration and trade out has long passed.  

While it's hard to imagine the Bitcoinica domain having any value now, the IP may still have some value.  Depending on who actually owns those assets (it might not be Bitcoinica LP), the may be available for liquidation and someone might make an offer for them.

It would be better for this community as a whole and especially for Bitcoinica users if the limited partner and the general partners could at least put aside their other disputes for 5 minutes and agree on a course of action so this process can be started as soon as possible rather than forcing users into the position of having to take court action to initiate an insolvency.  

The partnership coming together on this one issue won't prejudice any other causes of action which may exist, and - quite frankly - it is petulant bordering on the irresponsible for this next step to be delayed because of other conflict between the parties.  Just grow the fuck up and do it now so that the formal process can begin.  Users have already been disadvantaged enough and should not be further disadvantaged by having to has funds to take this to court when you guys know damned well that you can initiate the process yourselves.  The sooner this is turned over to a third party, the sooner users will have some kind of certainty, Intersango can concentrate on its core business, Wendon can do whatever the hell they're going to do, and everybody can step back a bit and take a more dispassionate look at the lessons to be learned from this series of events.

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[Littleshop]

Theory....

If Bitcoinica was taken over by a bankruptcy court/judge they would liquidate the assets (BTC and anything else) then distribute the proceeds to people who were owed currency only as they would not recognize BTC debt.  Not that I think it will ever get that far.

[Phinnaeus Gage]

Theory....

If Bitcoinica was taken over by a bankruptcy court/judge they would liquidate the assets (BTC and anything else) then distribute the proceeds to people who were owed currency only as they would not recognize BTC debt.  Not that I think it will ever get that far.

The moment they even think about converting BTC to fiat, it's recognized as a valuable asset. Every court would have to be very careful in proceeding on this fact alone. But for sake of argument, lets do it your way. There is no way that they could possible convert a half a million dollars (or whatever large amount it is) worth of BTC to fiat in a short time frame without actually watching the rate fall while doing it.

~Bruno~

[Bitcoin Oz]

Theory....

If Bitcoinica was taken over by a bankruptcy court/judge they would liquidate the assets (BTC and anything else) then distribute the proceeds to people who were owed currency only as they would not recognize BTC debt.  Not that I think it will ever get that far.

The moment they even think about converting BTC to fiat, it's recognized as a valuable asset. Every court would have to be very careful in proceeding on this fact alone. But for sake of argument, lets do it your way. There is no way that they could possible convert a half a million dollars (or whatever large amount it is) worth of BTC to fiat in a short time frame without actually watching the rate fall while doing it.

~Bruno~

It would be interesting what would happen if they sold all the coins off and crashed the market to < $2 per btc. I hope they tell us first so we can have cash ready 

[repentance]

Theory....

If Bitcoinica was taken over by a bankruptcy court/judge they would liquidate the assets (BTC and anything else) then distribute the proceeds to people who were owed currency only as they would not recognize BTC debt.  Not that I think it will ever get that far.

One way or another it is going to get that far.  The Limited Partnership is not going to continue which means it will be terminated.  Whether it's the general partner, the limited partner or the creditors who initiate this process (the GP and LP can agree to place the partnership in voluntary liquidation without petitioning the court), the LP will be wound up in insolvency.

It's not possible to know how a liquidator would regard Bitcoin debt, but one shouldn't assume they will regard it as having no value.  They may treat it as a commodity, they may simply assess it in terms of its $ value, they may look to how Bitcoinica LP was regarding that debt in their refund process (personally, I think this is the approach they would take as a liquidator cannot deal with disputed debt).

There is no way that they could possible convert a half a million dollars (or whatever large amount it is) worth of BTC to fiat in a short time frame without actually watching the rate fall while doing it.

That's true but remember that the original claims process valued BTC at around $5 each.  I'm not sure that even a large amount of Bitcoins coming on the market would move the price from its current level back down to $5 (although obviously buyers would be looking for a bargain).

It's also important to remember that in a New Zealand Limited Partnership, the limited partners are (literally) the equivalent shareholders and if the entity is liquidated then any uncalled shares are one of the assets which can be used for the benefit of creditors.  None of us know the exact nature of Wendon's holdings in Bitcoinica LP or whether their capital is paid up (if indeed their investment was in the form of money).

As I said to someone privately earlier today, I feel like locking everyone involved in this in a room and saying "none of you fuckers are going home until you reach a decision about how to break this deadlock".

[Phinnaeus Gage]

Theory....

If Bitcoinica was taken over by a bankruptcy court/judge they would liquidate the assets (BTC and anything else) then distribute the proceeds to people who were owed currency only as they would not recognize BTC debt.  Not that I think it will ever get that far.

One way or another it is going to get that far.  The Limited Partnership is not going to continue which means it will be terminated.  Whether it's the general partner, the limited partner or the creditors who initiate this process (the GP and LP can agree to place the partnership in voluntary liquidation without petitioning the court), the LP will be wound up in insolvency.

It's not possible to know how a liquidator would regard Bitcoin debt, but one shouldn't assume they will regard it as having no value.  They may treat it as a commodity, they may simply assess it in terms of its $ value, they may look to how Bitcoinica LP was regarding that debt in their refund process (personally, I think this is the approach they would take as a liquidator cannot deal with disputed debt).

There is no way that they could possible convert a half a million dollars (or whatever large amount it is) worth of BTC to fiat in a short time frame without actually watching the rate fall while doing it.

That's true but remember that the original claims process valued BTC at around $5 each.  I'm not sure that even a large amount of Bitcoins coming on the market would move the price from its current level back down to $5 (although obviously buyers would be looking for a bargain).

Then again, the courts don't necessarily have/need to convert the coins. Just treat them as a commodity. Let's pretend for a moment some exchange traded and stored bushels of corn. Thousands of clients had ten's of thousands of bushels of corn on account. But a fire destroyed the main office with all the records. Luckily, one of the owners remembers most of the transactions... Moving forward. The corn exchange goes into receivership (or whatever term is applicable) and courts aare now involved to return the corn to their rightful owners. All because 1/3 of the corn is now missing, doesn't mean the courts have to convert the corn to fiat so that everybody involved gets the fair return, in this case 2/3. Further imagine, that nobody in the courts knows a damn thing about corn, but they do know that there's a corn expect that can act as the liaison between all concerns.

~Bruno~

[Littleshop]

Theory....

If Bitcoinica was taken over by a bankruptcy court/judge they would liquidate the assets (BTC and anything else) then distribute the proceeds to people who were owed currency only as they would not recognize BTC debt.  Not that I think it will ever get that far.

One way or another it is going to get that far.  The Limited Partnership is not going to continue which means it will be terminated.  Whether it's the general partner, the limited partner or the creditors who initiate this process (the GP and LP can agree to place the partnership in voluntary liquidation without petitioning the court), the LP will be wound up in insolvency.

It's not possible to know how a liquidator would regard Bitcoin debt, but one shouldn't assume they will regard it as having no value.  They may treat it as a commodity, they may simply assess it in terms of its $ value, they may look to how Bitcoinica LP was regarding that debt in their refund process (personally, I think this is the approach they would take as a liquidator cannot deal with disputed debt).

There is no way that they could possible convert a half a million dollars (or whatever large amount it is) worth of BTC to fiat in a short time frame without actually watching the rate fall while doing it.

That's true but remember that the original claims process valued BTC at around $5 each.  I'm not sure that even a large amount of Bitcoins coming on the market would move the price from its current level back down to $5 (although obviously buyers would be looking for a bargain).

Then again, the courts don't necessarily have/need to convert the coins. Just treat them as a commodity. Let's pretend for a moment some exchange traded and stored bushels of corn. Thousands of clients had ten's of thousands of bushels of corn on account. But a fire destroyed the main office with all the records. Luckily, one of the owners remembers most of the transactions... Moving forward. The corn exchange goes into receivership (or whatever term is applicable) and courts aare now involved to return the corn to their rightful owners. All because 1/3 of the corn is now missing, doesn't mean the courts have to convert the corn to fiat so that everybody involved gets the fair return, in this case 2/3. Further imagine, that nobody in the courts knows a damn thing about corn, but they do know that there's a corn expect that can act as the liaison between all concerns.

~Bruno~

While your suggestion is reasonable, I still think that is not what would happen.

The court would sell the BTC as expected but when it came to tally the debt, they would not recognize BTC debt.  I am not saying this is right, but this is what they would do.   Selling assets (even unusual ones) is not unusual for a court.  Recognizing the owed BTC would be a first though and I do not think that would happen.  The assets would be divided up by people who could prove they transferred USD to bitcoinica either through MTGOX or a bank wire. 

[Phinnaeus Gage]

While your suggestion is reasonable, I still think that is not what would happen.

The court would sell the BTC as expected but when it came to tally the debt, they would not recognize BTC debt.  I am not saying this is right, but this is what they would do.   Selling assets (even unusual ones) is not unusual for a court.  Recognizing the owed BTC would be a first though and I do not think that would happen.  The assets would be divided up by people who could prove they transferred USD to bitcoinica either through MTGOX or a bank wire.

Wow! What a quagmire a future judge will be in. Surely it won't be like this http://www.youtube.com/watch?v=jrLvtoKZfxY (wait till you see what's in the can at the end of the video)

[repentance]

While your suggestion is reasonable, I still think that is not what would happen.

The court would sell the BTC as expected but when it came to tally the debt, they would not recognize BTC debt.  I am not saying this is right, but this is what they would do.   Selling assets (even unusual ones) is not unusual for a court.  Recognizing the owed BTC would be a first though and I do not think that would happen.  The assets would be divided up by people who could prove they transferred USD to bitcoinica either through MTGOX or a bank wire. 

The reason I don't think it would happen the way you think it would is because then the unsatisfied creditors would have a cause of action against the liquidator (and then the matter would have to be determined by a court).  Bitcoinica Consultancy has already accepted the Bitcoin claims as valid and a liquidator can't simply ignore that.

Even though the manner in which a liquidator must disburse proceeds is laid down by law, creditors can petition the court if they are unsatisfied with that process and even have the liquidator removed - and as the liquidator must make regular reports to creditors they are well aware of his intentions before disbursements are made and have time to take action to dispute those intentions.

[afbitcoins]

Wow theres some serious amounts of bitcoins been lost. Put my 30btc in the shade a bit

[melon]

as an outsider looking in w/ no stake; wouldn't the web hosting party be partly responsible also....maybe they should be listed as counterparty as well since they didn't secure the  cloud structure they were hosting on behalf of others not to mention the bad securing of bitcoinica by not using some two tier authentication... just a thought since they may not have been maintaining their own servers and were out on the cloud

[rebuilder]

as an outsider looking in w/ no stake; wouldn't the web hosting party be partly responsible also....maybe they should be listed as counterparty as well since they didn't secure the  cloud structure they were hosting on behalf of others not to mention the bad securing of bitcoinica by not using some two tier authentication... just a thought since they may not have been maintaining their own servers and were out on the cloud

The hosting company would probably have a limitation on liability in their contract. If they didn't, they'd be on the hook for theoretically unlimited damages if someone goes and stores something ridiculously valuable on their servers... Hosting would cost a lot more if the hosting cos were liable for all losses resulting from their neglicence.

[icicle]

Really?  Then have the police tell me they don't understand it, not you. Using this an excuse for lack of police involvement is nonsense.  The police have not become involved because they could get IP logs from ISPs and trace them right back to the inside job.

Ah. Thank you Vod! That was even better than my theory which was Zhou caught them attempting to steal and forced them to share. Whatever went on, Zhou knew no police were being called. Well they are being called now.

I can't get my bitcoins out of Intersango. I could be wrong, but I think it is because they aren't there. I think they might have been spent on trips to Las Vegas. Or on lawyers. He locked me out of my account and won't let me back in.

I emailed Strateman's local police station, putting out feelers to see about officially filing a complaint, seeing as it is a potential high-tech crime I want to report, and I'll take it from there, requesting seizure and forfeiture of all stolen goodies, including those taken from Bitcoinica customers. I would rather do that as, unlike suing and liquidation, the forfeiture laws make provision for the return of actual goods to their owners, rather than fiat.

I see this as a win-win. If my coins are there, I get them back. If they are not, I get to see Strateman go to jail. If a judge orders seizure and Strateman refuses to hand over the passwords to various wallets, I see him rotting in jail for quite a while for contempt of court. I don't see a 5th amendment defense as viable for him - as the existence of the coins is well-known - so giving out the passwords could not therefore be regarded as self-incrimination.

I mentioned in my email, in passing, that there appears to be about $50,000,000 worth not returned to customers from his previous venture. As the state gets to keep unclaimed forfeited goods, $50M should be enough for someone in the police department to take an interest.

Another problem with civil suits is who exactly to sue? In how many countries? Once this is viewed in the correct light - a criminal matter, it seems to me that Strateman locking someone away from the bitcoins she needs to treat a very sick dog is the latest in a pattern of such behavior.

Is anyone here on good terms with Zhou? He mentioned something that caught my attention, something Strateman denied. If he could prove it, I'd be interested.

ISP logs, huh? Do ISPs keep logs this long?

[icicle]

As for the proof, it is coming together.  For example, they had two factor authentication turned on for their MTGox account, then for some reason they turned it off before the "theft" occurred.  

What ? ? ?

And there's Amir, emailing me about how poor he is. When I never asked.

Anyone have a source and a date for this?