Bitcoin lawsuit may be the first of many

A CUSTOMER is suing MTGOX, once the world’s largest bitcoin exchange, in what may be the first of many US court cases to recoup millions of dollars in losses linked to a hacking attack that led to the exchange’s bankruptcy.

In a complaint filed on Thurs- day in US District Court in Chicago, plaintiff Gregory Greene said MtGox and its CEO, Mark Karpeles, were negligent and committed fraud in failing to protect the Tokyo-based exchange from theft.

Greene said bitcoin prices plummeted after MtGox found the security breach, and that he and other investors in the virtual currency could not cut their losses because the exchange had halted trading.

MtGox took down its website on Tuesday.

“MtGox intentionally and knowingly failed to provide its users with the level of security protection for which they paid,” said Greene. He said he estimated his bitcoin stake at $25 000 (R268 230).

The lawsuit seeks class action status on behalf of MtGox users, restitution, monetary damages and other remedies.

At a news conference on Friday at the Tokyo District Court, Karpeles said he was “very sorry”, and blamed MtGox’s collapse on a “weakness in our system”. But he predicted that the bitcoin market would continue to grow.

MtGox said it might have lost 750 000 of its customers’ bitcoins and 100 000 of its own, equal to about 7% of bitcoins worldwide, for a total loss of about $480-million.

The exchange reported having 127 000 creditors, liabilities of ¥6.5-billion and assets of ¥3.84-billion.

It is common for alleged frauds that generate significant losses or attention to result in a slew of US lawsuits seeking class action status, even if the alleged wrongful activity occurs outside the country.

“This is a case of serial mismanagement, if not outright fraud, by Karpeles and MtGox,” said Steven Woodrow, a partner at the Edelson law firm in Denver, who filed Greene’s lawsuit.

“Users of the exchange are collectively out millions while MtGox holds onto their bitcoins. We intend to get to the bottom of this . . .” —