Mt. Gox: all the news on Bitcoin’s original biggest bankruptcy scandal

The US federal government has charged two Russian nationals in connection with the series of hacks that brought down the Mt. Gox Bitcoin exchange in 2014. In a press release on Friday, the Department of Justice announced it’s unsealing a 2019 indictment charging (PDF) Alexey Bilyuchenko and Aleksandr Verner with conspiring to launder 647,000 Bitcoins stolen from the exchange, which was worth around $400 million at the time.

The government is separately charging Bilyuchenko for working with Alexander Vinnik — who the DOJ indicted in 2017 before he was extradited to the US last fall — for operating BTC-e, a now-defunct crypto exchange that served as “one of the primary ways by which cyber criminals around the world transferred, laundered, and stored the criminal proceeds of their illegal activities.”

Every six months for the past four years, some number of former customers of the defunct Mt. Gox bitcoin exchange have gathered in a small room in a Tokyo courthouse to hear an update from Nobuaki Kobayashi, the stoic Japanese attorney appointed as the trustee for the case.

The number of creditors attending the meeting has dwindled over time: the first one reportedly drew more than 100 people, but the most recent one earlier this month drew fewer than 30, according to the estimates of one attendee.

This week, one of Bitcoin’s largest and most notorious coin exchanges was brought down by law enforcement — and police and prosecutors are now beginning to explain why. On Thursday, the Department of Justice unsealed an indictment against Alexander Vinnik — thought to be the operator, or one of the operators of Bitcoin exchange BTC-e — charging him with 21 counts of money laundering and other related financial crimes. The counts range from operating an unlicensed money transmittal business to a variety of money laundering charges, including laundering associated with ransomware payouts and a theft from the now-defunct Mt Gox exchange. More generally, the indictment paints BTC-e as a hub of criminal activity, laundering the proceeds of everything from drug trafficking to ransomware attacks.

As some suspected, Vinnik’s alleged crimes go beyond just operating the exchange. Feds believe he played a role in the theft of more 800,000 bitcoin — about $400 million at the time — from Mt. Gox, a staggering loss that ultimately shuttered the exchange. According to the indictment, 530,000 of those bitcoin ended up passing through wallets controlled by or associated with Vinnik, although his role in the larger scheme remains unclear.

Greek police have arrested one of the central figures in the Bitcoin exchange BTC-e on suspicion of money laundering. Russian citizen Alexander Vinnik was arrested in Greece at the request of US law enforcement, according to a Reuters report. The report cites two sources close to BTC-e who describe Vinnik as “a key person behind the platform.” The exchange itself has been down since Tuesday evening.

The BTC-e exchange has long been a favorite of criminals, as its headquarters in Russia places it outside the reach of US and European law enforcement. Recent Google research found that 95 percent of ransomware cash-outs occurred through the BTC-e exchange, although it’s unclear whether the exchange itself would be liable for those payments. Those payments have made BTC-e one of the largest bitcoin exchanges, regularly handling more than 3 percent of total Bitcoin transactions.

This weekend, Mt. Gox founder Mark Karpeles was arrested in Tokyo, bringing years of confusion and paranoia to an end. Starting in 2010, Karpeles ran the largest and most powerful bitcoin exchange, but the site went offline in February 2014 after it was discovered that $400 million in bitcoin had gone missing from the company’s accounts. The official explanation was an obscure “transaction malleability” bug, exploited expertly over the course of years, but insiders have long suspected something more sinister was at work, and this weekend’s arrests only lend credence to their suspicions.

As Karpeles heads to jail, his former employees are speaking up. In a blistering AMA Friday night, former CEO Ashley Barr laid into Karpeles, detailing just how ugly the site was behind the scenes, including evidence of price manipulation, bizarre coding missteps, and outright embezzlement. In one particularly alarming detail, there seems to have been no separation between Gox’s deposits and Karpeles’ personal account. According to Barr, when you sent a deposit to MtGox, the money ended up in Karpeles’ personal bitcoin wallet. It’s worth reading through in its entirety, but the upshot is that Gox was designed with criminal negligence and Karpeles was genuinely indifferent to the catastrophe he was causing. Even after the arrest, Barr is genuinely angry at Karpeles, saying she and the other employees “plan to eat pizza in front of Mark while he is in prison.”

Mark Karpelès, the former CEO of bitcoin exchange Mt. Gox, is getting a good look at the inside of a Japanese jail cell. The Tokyo Metropolitan Police confirmed in a statement that detained Karpelès early on Saturday morning at his apartment. The police suspect that he illegally manipulated Mt. Gox’s systems to funnel some $1 million into his personal accounts. Under Japanese law, Karpelès can be held without formal charges for up to 23 days. There’s no possibility of bail, either.

The arrest is of little consequence for Mt. Gox’s former clients, who woke up one day to find that their Bitcoins had disappeared. The company — which was the largest Bitcoin exchange at the time — filed bankruptcy in February 2014 after claiming that roughly $450 million worth of the virtual currency had vanished from its servers. The company later “found” $100 million, but the rest appears to be gone, either stolen or lost forever. Mt. Gox is currently in the midsts of liquidation proceedings.

Mark Karpeles, the CEO of stricken Bitcoin exchange Mt. Gox, has denied any involvement in the online black market Silk Road.

Earlier today in the trial of Ross Ulbricht, accused of running Silk Road under the pseudonym Dread Pirate Roberts, a DHS agent said under cross-examination that Karpeles had been a prime suspect in the investigation before attention fell on Ulbricht. Lawyers for the defense implied, if not outright argued, that Karpeles was the real Dread Pirate Roberts and had wanted to artificially inflate the value of Bitcoin.

Mt. Gox, the embattled bitcoin exchange that filed for bankruptcy protection last month after losing almost half a billion dollars’ worth of customers’ virtual funds, is now reportedly asking a Tokyo court for permission to liquidate. According to The Wall Street Journal, the once leading exchange has abandoned its attempt to rebuild the business under bankruptcy protection due to the complexity and unrealistic nature of the plans.

One source says that Mt. Gox is still attempting to find a buyer, which may entitle creditors to a portion of future earnings. But the exchange’s decision to file for liquidation after planning rehabilitation means those with substantial investments are likely to get less of their money back. The court still has to approve Mt. Gox’s request, at which point a trustee would assume CEO Mark Karpeles’ control over the company’s assets.

Mt. Gox says that it now holds approximately 202,000 bitcoins, with 650,000 still missing. Given the dramatic change in circumstance overnight, the exchange warns that the figure missing is still subject to change — as are the suspected reasons for their disappearance. “Please note that the reasons for their disappearance and the exact number of bitcoins which disappeared is still under investigation,” Mark Karpeles, Mt. Gox’s CEO, writes in a statement. The found bitcoins have since been moved offline for safekeeping.

It’s unclear what Mt. Gox will do with any bitcoins that it locates, as the vast majority of the currency it lost belongs to its customers. While this discovery may raise hopes that some could see their fortunes return, the exchange is still a ways away from locating the entirety of the bitcoins it was accountable for. Still, this raises the possibility that Mt. Gox does in fact have access to more bitcoins than it believes — or than it has let on, as some irritated observers have posed.

Tokyo-based Bitcoin exchange Mt. Gox lost $400 million worth of bitcoins in February. Its management said the amount was stolen after hackers exploited a transaction bug to divert the funds, but some of Mt. Gox’s users are not so sure, suggesting instead that the exchange’s owners pocketed the cash. Now, facing silence from those owners about the fate of the money and the methods by which 6 percent of all of the Bitcoin in the world could have been stolen, a group of hackers claims it has broken into the bankrupted Bitcoin exchange’s network to get answers.

Forbes reports that the group gained access to the personal blog and Reddit account of Mark Karpeles, Mt. Gox’s CEO. The hackers used the platforms to post a message that claimed Karpeles still had access to some of the bitcoins that he’d reported stolen. In support of the claim, they uploaded a series of files that included a spreadsheet of more than a million trades, Karpeles’ home addresses, and a screenshot purportedly confirming the hackers’ access to the data.

After weeks of speculation over its financial health, the beleaguered Bitcoin exchange Mt. Gox has filed for bankruptcy protection. A company lawyer made the announcement at an impromptu news conference held at Tokyo District Court, according to The Wall Street Journal.

Mt. Gox says it has ¥6.5 billion ($63.9 million) in liabilities with ¥3.84 billion ($37.7 million) of assets at present, and the company has admitted that it has lost a total of 850,000 bitcoins — worth close to $500 million. 750,000 of those belonged to customers, and 100,000 were company assets.

Mt. Gox headquarters in Tokyo.

By now, Mt. Gox’s fate is more or less sealed. The Bitcoin exchange probably won’t be bailed out, CEO Mark Karpeles will move on, and the rest of the Bitcoin economy will move on as if this was just a bump in the road. But as the community recovers, it’s left a single, thorny question unanswered: who took $400 million worth of bitcoins from Mt Gox’s vault?

On Monday at around 11PM Mt. Gox, the largest exchange for trading the virtual currency Bitcoin, started disappearing piece by piece. First the homepage disappeared. Next the support page was pulled, followed by the press releases and then the API. “The requested page was not found on this server,” customers were told when they tried to access their deposits. Users started to panic as they realized they might never get their bitcoins back.

It had been a rough month for Gox. The company froze customer accounts, citing a technical vulnerability. Now, three weeks later, a leaked internal document revealed that the exchange is more than $100 million dollars in the hole owing to a theft that stole 743,000 bitcoins over the course of years.

The woeful situation for Bitcoin exchange Mt. Gox, which went offline earlier today, is seemingly no close to getting better. A pair of reports suggest that the company is now being investigated by prosecutors in the US as well as Japan, while another suggests that it could have indeed lost over 744,000 Bitcoins in a theft several years ago. Citing an unnamed source, The Wall Street Journal says federal prosecutors subpoenaed Mt. Gox sometime this month, asking it to preserve documents.

The embattled Bitcoin exchange Mt. Gox has gone offline, after several organizations from the Bitcoin community released a joint statement distancing themselves from the Tokyo company’s troubles. Mt. Gox’s website remains inaccessible, and the exchange appears to have deleted its entire Twitter feed.

The joint statement was originally billed as “regarding the insolvency of Mt. Gox,” but was later updated to remove that language. A spokesman for the group told Recode, however, that “Mt. Gox has confirmed it will file bankruptcy in private discussions with other members of the bitcoin community.” Mt. Gox did not respond to requests for comment from The Verge.

Mt. Gox, once the largest Bitcoin exchange in the world, is operated from an unmarked Tokyo office block that offers no indication of its major, controversial influence on the digital currency’s health. No indication, that is, unless you’ve walked past the headquarters in the past week, where protesters are attempting to draw unwelcome attention to the company’s existence. “Mt. Gox: Where is our Money,” reads one sign. “Mt. Gox: Are you solvent?” reads another. What’s going on?

Bitcoin trader Kolin Burges started the protest last week, flying from London to seek answers about Mt. Gox’s ongoing moratorium on withdrawals. Although Bitcoin’s market price is volatile, the currency has nearly halved in value at Mt. Gox from $950 earlier in the month to $558 today, sparked by a crisis in confidence in the exchange’s solvency. Burges started staking out the headquarters on Friday, a day that saw heavy snowfall hit Tokyo for the second time in a week, and, despite brief confrontations with Mt. Gox CEO Mark Karpeles, is continuing the protest. “It’s pretty much secretive,” Burges tells The Verge. “There’s no real statements about whether they still have people’s money, or whether they’re solvent.” Burges, who has 250 bitcoins in his Mt. Gox account, says he plans to keep up the protest until he gets an answer.

Bitcoin exchange Mt Gox first halted withdrawals two days ago, spurring a selling panic and furious speculation — but now, they’ve finally come clean about why. In a post this morning, the team said it noticed a currency-wide vulnerability called “transaction malleability” that would allow a user to alter transaction details to make it seem as if a transfer failed when it had actually succeeded. Since users regularly report to exchanges that particular transactions did not go through, it represents an enormous opportunity for fraud, and the team said they had suspended any bitcoin-to-bitcoin withdrawals until the vulnerability could be fixed.

The popular Bitcoin exchange Mt. Gox is suspending withdrawals for an unstated period of time in order to perform maintenance. The exchange hopes to resolve withdrawal delays that some users have been complaining about for months now, which have allegedly held up transactions for weeks or longer. It began working to resolve the issues late last month — noting that only a “limited number of users and transactions” were impacted — but it now says that it’s necessary to fully halt withdrawals in order to determine what’s going wrong.

News of the exchange halting withdrawals sent the notoriously volatile Bitcoin into a small nosedive overnight, with its value falling around $120. It’s since regained about half of the lost value and is sitting near $730 per bitcoin. This isn’t the first time Mt. Gox has had to halt some of its operations — it’s previously suspended both conversion to the dollar and regular trading — but it’s a clear reminder of Mt. Gox’s continued influence over the currency. It was once by far the largest Bitcoin exchange, and while others have risen in popularity since, it’s still worrisome for Bitcoin owners that a single exchange’s maintenance can cause prices to plummet.