Mt. Gox wins temporary bankruptcy protection [UPDATED]

Posted Mar 11, 2014

Mt. Gox used to be the largest Bitcoin exchange services until hackers broke into the service and stole over $400 million in Bitcoin. Mt. Gox has now filed for U.S. bankruptcy protection in Dallas to halt a U.S. legal action against the company.

Mt. Gox said that without U.S. protection, it would spend substantial funds defending itself from a U.S. lawsuit that is seeking class action status in federal court in Chicago. The plaintiff leading leading the Chicago lawsuit is scheduled today to ask a federal judge to freeze Mt. Gox’s U.S.-based servers and other computer equipment. He also asked to set up a trust over Mt. Gox’s assets.

Mt. Gox said that it may have lost 750,000 customer Bitcoins when it was hit by the hackers. Mt. Gox said that the hack is now the subject of an intense investigation that indicated the Bitcoins were lost because of a flaw in the software algorithm that underlies Bitcoin.

The Chapter 15 filing will allow Mt. Gox to ask the U.S. Bankruptcy Court to recognize its foreign bankruptcy. It will also assist in the Japanese proceedings by protecting its U.S.-based assets. Creditors in the U.S. can contest the Chapter 15 protection though. Mt. Gox is involved in at least two lawsuits now.

Illinois resident Gregory Greene filed the class action lawsuit in late February. He is suing Mt. Gox on behalf of all U.S. residents that paid a trading fee to Mt. Gox and who had Bitcoins with the exchange.

Mt. Gox is also dealing with a lawsuit in federal court in Washington state filed by CoinLab Inc for breach of contract. CoinLab is seeking $75 million from Mt. Gox. Mt. Gox CEO Mark Karpeles is scheduled to be deposited in that case this month.

The bankruptcy was filed under Mt. Gox Co Ltd, U.S. Bankruptcy Court, Northern District of Texas, No. 14-31229.

Updated: Mt. Gox was given temporary bankruptcy protection, which put the two U.S. lawsuits on hold. Judge Harlan Hale of the U.S. Bankruptcy Court in Dallas approved of the company’s motion for provisional relief under Chapter 15. Chapter 15 bankruptcy protection laws launched in 2009 to provide companies in other countries with benefits of the U.S. court system.

[Source: Reuters]