[ANN] Bitcoinica Consultancy abandons customers. Bitcoinica to enter Liquidation

[thest0ckman]

looks like i have to keep wasting my time reading this forum and keep an eye out for a new claim process?

[iamapi]

3 month passed after the incident...

What's the progress now and when will we get our money back?

Patrick Murck posted a couple of days ago that USD 100,000 and 20,000 BTC retrieved from "Chen" have been placed in Bitcoinica's MtGox account awaiting transfer to a receiver.  When a liquidator takes over from the receiver, they'll make a preliminary report to creditors which outlines the assets available for distribution to creditors and when the liquidation should be complete.  

https://bitcointalk.org/index.php?topic=97272.msg1098303#msg1098303

[sarpar]

"Zhou" took funds recovered from "Chen" hostage in order to circumvent AML-regulations for suspicious private transactions at AurumXChange. According to him these funds locked at AurumXchange belong now to us Bitcoinica-creditors (which also means Zhou still privately holds further stolen funds). Even though I despise him for tricking his private funds free the question remains:


@AurumXchange can you unlock these funds and send them into the MtGox trust account? please give a status update.

[Vod]

"Zhou" took funds recovered from "Chen" hostage in order to circumvent AML-regulations for suspicious private transactions at AurumXChange. According to him these funds locked at AurumXchange belong now to us Bitcoinica-creditors (which also means Zhou still privately holds further stolen funds). Even though I despise him for tricking his private funds free the question remains:


@AurumXchange can you unlock these funds and send them into the MtGox trust account? please give a status update.

So how much has Zhou Tong stolen and not yet returned?


@AurumXchange should keep the funds locked.  Zhou has stated they are his personal funds, so it is between him and AurumXchange.  He is keeping our bitcoins to fund his personal mistakes.  In other words, he's charging a fee for stealing from us. 

[repentance]

"Zhou" took funds recovered from "Chen" hostage in order to circumvent AML-regulations for suspicious private transactions at AurumXChange. According to him these funds locked at AurumXchange belong now to us Bitcoinica-creditors (which also means Zhou still privately holds further stolen funds). Even though I despise him for tricking his private funds free the question remains:


@AurumXchange can you unlock these funds and send them into the MtGox trust account? please give a status update.

So how much has Zhou Tong stolen and not yet returned?


@AurumXchange should keep the funds locked.  Zhou has stated they are his personal funds, so it is between him and AurumXchange.  He is keeping our bitcoins to fund his personal mistakes.  In other words, he's charging a fee for stealing from us. 

He actually stated that the funds belong to a "friend" of his for whom he was doing a favour selling LR.  That makes it difficult for AurumXchange to release the funds to anyone until both their source and the legitimacy of of their origin can be established.  If Zhou can't establish the funds as his, he can't give permission for them to be released to the Bitcoinica MtGox account (originally said he was going to do that and get the funds back of Chen - if Chen was able to reimburse him for that then Chen should be able to come up with another $40,000 to be sent through Patrick Murck).

[sarpar]

He actually stated that the funds belong to a "friend" of his for whom he was doing a favour selling LR.  That makes it difficult for AurumXchange to release the funds to anyone until both their source and the legitimacy of of their origin can be established.  If Zhou can't establish the funds as his, he can't give permission for them to be released to the Bitcoinica MtGox account (originally said he was going to do that and get the funds back of Chen - if Chen was able to reimburse him for that then Chen should be able to come up with another $40,000 to be sent through Patrick Murck).

I am aware of the obstacles here - that's why I addressed aurumXchange directly hoping for a clear statement. If aurumXchange states clearly that there is no way they can pass through these 40.000 to the Bitcoinica trust account without Zhou's help, Zhou Tong would be clearly without any doubt committing some kind of embezzlement. 

Zhou stated clearly he is able to secure 140.000 of which 100.000 are to be returned and 40.000 used to pay off his friend. The 40.000 for his friend are compensated by the aurumXchange account. Ergo:  if his collateral shows to be illiquid (NB by his own wrongdoing) he has to offer another option to compensate us. e.g. like repentance suggested. He can't take Bitcoincia customers hostage in his dispute with aurumXchange. His transaction on aurumXchange (according to his own words) is completely unrelated to Bitcoinica so I suggest him to leave it at that!

@Zhou How do you in all seriousness propose to return the remaining 40.000?

[repentance]

I've lost track a bit of exactly what's been lost and recovered.  From memory (please correct me):

Linode theft; X BTC (losses covered by investors I believe)
Rackspace theft: 20% of BTC; 0% of USD
MtGox API theft: 40,000 BTC; 200,000 USD

Is this right?  Does anyone know where that puts all the creditors as a percentage of their deposit?

Are we working on 50% of balances returned?  70%?  80%?  100% seems unlikely.

When the MtGox intrusion was originally announced, Amir posted that it would likely result in a forced reduction in refunds of 30%.  However that was based on refunding users at a price of ~USD 5 per BTC (the figure being used when Bitcoinica was taken offline after the MtGox hack).  The increase in BTC price plus the return of some of the funds from the MtGox breach should close that gap in theory, but liquidation costs now need to be factored into the equation and liquidators typically charge upwards of $200 per hour. 

A liquidator can only give preferential treatment to unsecured creditors in limited circumstances, so if some unsecured creditors have received a 50% payment and those creditors aren't entitled to be treated as preferential, the liquidator will need to ensure that either other unsecured creditors also receive a 50% payment or claw back the 50% payments which have already been made so that other creditors are not disadvantaged by those payments.  We know that there is currently at least 20,000 BTC and USD 100,000 in the Mt Gox account but we don't really know the dollar value of 50% initial payments yet to be made.

[ninjarobot]

@Zhou How do you in all seriousness propose to return the remaining 40.000?

I had a conversation via email with Zhou earlier this week and this is what he told me:

I'm willing to personally commit the liability after the liquidation is done for the shortfall of funds, paid back from the profits in my future businesses.

It is nice of Zhou to suggest this but I don't think it is very practical, nor would it be ethical for creditors to accept Zhou's money if he really is innocent. Is anyone going after Chen?

I've lost track a bit of exactly what's been lost and recovered.  From memory (please correct me):

Linode theft; X BTC (losses covered by investors I believe)
Rackspace theft: 20% of BTC; 0% of USD
MtGox API theft: 40,000 BTC; 200,000 USD

Here you go:

• 2012/03/02 - LINODE hack. 43,554 BTC stolen. LP (Tihan’s fund) covers loss.
• 2012/05/11 - RACKSPACE hack. 18,547 BTC Stolen, Full data loss. LP covers loss.
• 2012/07/13 - MtGox account compromise: 40,000 BTC and 40,000 USD stolen.
• 2012/08/14 - MtGox fund recovery from Chen: 20,000 BTC and 100,000 USD recovered.

liquidators typically charge upwards of $200 per hour.  

Ouch! Now I understand the meaning of the word 'liquidator'. At that rate there will be little left (Consider the time needed to reconstruct the DB and vet claims). I certainly hope Tihan can find a receiver and liquidator that does not eat baby panda hearts for breakfast. Personally I'm hoping to see at least 70% back. (That would still mean a ~12,000 USD haircut in my case..)

[Phinnaeus Gage]

@Zhou How do you in all seriousness propose to return the remaining 40.000?

I had a conversation via email with Zhou earlier this week and this is what he told me:

I'm willing to personally commit the liability after the liquidation is done for the shortfall of funds, paid back from the profits in my future businesses.

It is nice of Zhou to suggest this but I don't think it is very practical, nor would it be ethical for creditors to accept Zhou's money if he really is innocent. Is anyone going after Chen?

I've lost track a bit of exactly what's been lost and recovered.  From memory (please correct me):

Linode theft; X BTC (losses covered by investors I believe)
Rackspace theft: 20% of BTC; 0% of USD
MtGox API theft: 40,000 BTC; 200,000 USD

Here you go:

• 2012/03/02 - LINODE hack. 43,554 BTC stolen. LP (Tihan’s fund) covers loss.
• 2012/05/11 - RACKSPACE hack. 18,547 BTC Stolen, Full data loss. LP covers loss.
• 2012/07/13 - MtGox account compromise: 40,000 BTC and 40,000 USD stolen.
• 2012/08/14 - MtGox fund recovery from Chen: 20,000 BTC and 100,000 USD recovered.

liquidators typically charge upwards of $200 per hour.  

Ouch! Now I understand the meaning of the word 'liquidator'. At that rate there will be little left (Consider the time needed to reconstruct the DB and vet claims). I certainly hope Tihan can find a receiver and liquidator that does not eat baby panda heart for breakfast. Personally I'm still hoping to see at least 70% back. (That would still mean a ~12,000 USD haircut in my case..)

All I know is that I turned one guy onto Bitcoin who just inherited a chuck of money. I never mentioned Bitcoinica to him--just Bitcoin. The next thing I learn is that supposedly he (Jerry) had about $10,000 USD tied up in Bitcoinica. Although he never mentioned the exact amount, via conversations that's my best assessment. I'm pretty sure he bought in at $5/BTC, thus he could have made 200% profit recently. Instead, he would have been better off having it sitting in a conventional bank collecting 1% interest.

This past Sunday, I stopped over at the Sandwich Flea Market--two blocks from my home--to rap with a couple vendor friends of mine--Mike and Kenny. After talking shop awhile, I got ready to leave when Mike asked me about that internet money I'm involved in. I have never mentioned Bitcoin to either one of those guys, so I was taken aback when he bought it up. I asked him if he meant Bitcoin, whereupon he said yes, recalling that that's what he thought it was. Come to find out that Mike learned about Jerry's lost via a friend, via a friend, via a friend (think small town gossip, if you will). Fortunately, I had the opportunity to set the matter straight with him and Kenny, but did learn that a lot of people think elsewise about me here in Sandwich.

So, here I am on Bitcointalk trying my damnest to uncover the truth and, admittedly, fucking up along the way, and what do I get as a reward?



~Bruno~

[sarpar]

@Zhou How do you in all seriousness propose to return the remaining 40.000?

I had a conversation via email with Zhou earlier this week and this is what he told me:

I'm willing to personally commit the liability after the liquidation is done for the shortfall of funds, paid back from the profits in my future businesses.

It is nice of Zhou to suggest this but I don't think it is very practical, nor would it be ethical for creditors to accept Zhou's money if he really is innocent. Is anyone going after Chen?

Innocent or not doesn't matter here - he chose to pay off his friend with money returned from "Chen". These 40.000 belong to US and WE didn't agree to give Zhou Tong a loan!

Also consider:
1. The amount recovered is substantially less than stolen - we don't know in detail what happened here (there is enough room for a profit margin).
2. Chen A MILLIONAIRE didn't replace the cost of his laundering activity
3. Zhou protects Chens identity
4. Zhou strictly rejects to provide information about his 40.000 AurumXchange transaction to simply unlock these funds and repay the 40.000 Dollar loan he took from us without permission.

Especially 4. makes his promise to repay from future profits implausible. It's time to put the screws on.

[Bitcoin Oz]

Wont the liquidator sell the bitcoins and only deal in USD ?

[Raoul Duke]

So, here I am on Bitcointalk trying my damnest to uncover the truth and, admittedly, fucking up along the way, and what do I get as a reward?

It could have been worse. Imagine if it was a pineapple...

[Phinnaeus Gage]

LOL, psy! You're not a mod anymore?

~Bruno~

[ninjarobot]

Innocent or not doesn't matter here - he chose to pay off his friend with money returned from "Chen". These 40.000 belong to US and WE didn't agree to give Zhou Tong a loan!

Well, technically I guess the 40,000 USD belongs to Bitcoinica. And the operators of Bitcoinica apparently didn't really care about recovering those funds anyway.

Also consider:
1. The amount recovered is substantially less than stolen - we don't know in detail what happened here (there is enough room for a profit margin).
2. Chen A MILLIONAIRE didn't replace the cost of his laundering activity
3. Zhou protects Chens identity
4. Zhou strictly rejects to provide information about his 40.000 AurumXchange transaction to simply unlock these funds and repay the 40.000 Dollar loan he took from us without permission.

Especially 4. makes his promise to repay from future profits implausible. It's time to put the screws on.

Zhou addressed some of those concerns to me so I will quote them here.

on #1:

Bitcoinica announced the exchange rate to be $5.1 per BTC. At this rate, all funds have been recovered. I personally feel unfair too, that's why I suggest you to take actions against Bitcoinica.

on #3:

I'm not protecting his identity. I just deem it to be unnecessary at this point. He is not running away (AFAIK he doesn't even have a passport), and the fund return is pending Bitcoinica's liquidation.

on #4:

I didn't take possession of any part of the stolen funds myself. The $40,000 is still with Chen Jianhai because I was allowed to not facilitate the return of this portion until the AurumXchange issue sorted out. I have asked the creditors to push AurumXchange to transfer all the locked funds to Bitcoinica as well. You can do the same if you like.

[repentance]

@Zhou How do you in all seriousness propose to return the remaining 40.000?

I had a conversation via email with Zhou earlier this week and this is what he told me:

I'm willing to personally commit the liability after the liquidation is done for the shortfall of funds, paid back from the profits in my future businesses.

It is nice of Zhou to suggest this but I don't think it is very practical, nor would it be ethical for creditors to accept Zhou's money if he really is innocent. Is anyone going after Chen?

Honestly, this sounds like an attempt to avoid being named in any lawsuits related to the collapse of Bitcoinica and/or being pursued by a liquidator for the recovery of funds.  In theory, creditors whose combined claims total 75% of the total owed can accept payment arrangements but it's really, really unlikely that a liquidator is going to ignore the criminal aspect of Bitcoinica's failure.  

Liquidators have some discretion, but it's not absolute and any liquidator who did not seek Zhou's active co-operation in providing information about Chen would be taking a substantial risk - liquidators have legal liability for the manner in which they administer insolvent estates.  In this particular case, I think there's zero chance that a liquidator is going to be able to avoid investigating the issues of personal liability of those connected with Bitcoinica and their connections to any criminal activity - there'd be a flurry of complaints to the Registrar of the Insolvency and Trustee Service if that happened and a very real possibility that the private liquidator would be replaced by the Official Assignee.

No-one can "go after Chen" unless Zhou is willing to provide all the information he has about Chen in order for that line of enquiry to be pursued.

#4 is a bullshit answer.  There is no reason whatsoever why Zhou's "friend's" funds on AurumXchange should be released to Bitcoinica.  Zhou's just using that argument to get people to pressure AurumXchange to release the funds without them verifying the true source and legitimacy of the funds.  According to Zhou, it's the $5,000 AurumXchange transaction which is Chen's, not the $40,000 one.

There is zero reason for Chen not to pay the remaining $40,000 to Patrick Murck other than Zhou's desire to use that money as leverage for getting the AurumXchange account unlocked.  That he's doing so strongly suggests that he's unable to prove the source and origin of the AurumXchange funds - otherwise he'd have done so by now and the funds would have either been paid to Bitcoinica or returned to Zhou's "friend".

Zhou always wants to come out of every shit-storm looking like a hero.  It's probably not going to happen this time because it's not just this community who'll be judging his role in the fall of Bitcoinica.

[sarpar]

Zhou addressed some of those concerns to me so I will quote them here.

on #1:

Bitcoinica announced the exchange rate to be $5.1 per BTC. At this rate, all funds have been recovered. I personally feel unfair too, that's why I suggest you to take actions against Bitcoinica.

on #3:

I'm not protecting his identity. I just deem it to be unnecessary at this point. He is not running away (AFAIK he doesn't even have a passport), and the fund return is pending Bitcoinica's liquidation.

on #4:

I didn't take possession of any part of the stolen funds myself. The $40,000 is still with Chen Jianhai because I was allowed to not facilitate the return of this portion until the AurumXchange issue sorted out. I have asked the creditors to push AurumXchange to transfer all the locked funds to Bitcoinica as well. You can do the same if you like.

Ninjarobot - thank you very much for the intelligence. This kind of information should be public.

#1 is this a fact that the numbers add up at 5.1USD/BTC? who can confirm?

#2 haha - I thought that's part of the deal with Chen (according to #4 he holds still 40.000). Besides that he could only benefit making this information public.

#4 He was allowed by WHOM? So he admits taking Bitcoinica's funds hostage for something unrelated?

[ninjarobot]

Honestly, this sounds like an attempt to avoid being named in any lawsuits related to the collapse of Bitcoinica and/or being pursued by a liquidator for the recovery of funds.

Possibly. He certainly did his best to avoid being named in lawsuits (who can blame him?):

I contributed 5,000 BTC and talked to the creditors regularly exactly because I wanted to avoid any lawsuits against me.

Anyway, I will now stop selectively quoting Zhou from the conversation I had with him this week. If Zhou agrees, I would be happy to make the entire conversation public.

[repentance]

#4 He was allowed by WHOM? So he admits taking Bitcoinica's funds hostage for something unrelated?

Zhou may have misled Patrick Murck about the funds on AurumXchange. Patrick seemed unaware of Zhou claiming those funds belong to a "friend" (not Chen) of Zhou's on whose behalf he conducted a transaction.

https://bitcointalk.org/index.php?topic=97272.msg1098392#msg1098392

[repentance]

Wont the liquidator sell the bitcoins and only deal in USD ?

Possibly NZD, but yes - they'll liquidate the assets and pay people in dollars, whether the assets are BTC, diamonds, bananas, or shares in Berkshire Hathaway.

[MelMan2002]

Zhou addressed some of those concerns to me so I will quote them here.

on #1:

Bitcoinica announced the exchange rate to be $5.1 per BTC. At this rate, all funds have been recovered. I personally feel unfair too, that's why I suggest you to take actions against Bitcoinica.

#1 is this a fact that the numbers add up at 5.1USD/BTC? who can confirm?

To be clear - there is no magical number that the numbers add up to.  It is arbitrary.  Move that rate up and some people lose more while others gain more.  Now, technically if you moved it too high then it would be past the point of liquidation for those that shorted and you would be short on funds to payout those that went long.

But Bitcoinica had a good month of stability in btc price to payout and they failed to do so - so they should have to pay the difference.  And if they don't have the funds then the loss is spread between those in long positions.

But the bottom line is that the exchange rate should be the rate at the time that the money is paid out.  Either that or they take the highest rate between then and when paid out for long positions and the lowest rate between then and when paid out for short positions and close at those rates and then spread the loss between all those that held positions (as a percentage of the gains made from their positions).

Zhou had mentioned possibly picking a number in that range before (if he were running the show) because he figured that the payouts would happen as quickly as possible so any price change would be insignificant.

Bitcoinica seems to have chosen that number because presumably it was more favorable for those that were buddy-buddy with Tihan.  I can't think of any other reason to do so.