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The Bitcoin Bugle: Libertarians Get Litigious

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Freedom from pesky regulators and rules and governments is great. Until it isn't. And then you call your lawyer. And maybe an insurance company.

A customer who claims to have had $25,000 worth of bitcoins locked up in Tokyo-based Mt. Gox, which filed for bankruptcy earlier Friday, is seeking court approval to pursue a class-action lawsuit against the digital exchange and its owners.

Gregory Greene, who filed the claim Thursday with an Illinois District Court, is seeking damages, an injunction, restitution and other remedies against Mt. Gox, its Japan-based holding company Tibanne Co. and Chief Executive Mark Karpeles, its principal shareholder….

The claim alleges that Mt. Gox, Tibanne and Mr. Karpeles are guilty of consumer fraud by engaging in "unlawful, deceptive, and unfair conduct that is immoral, unscrupulous, and causes substantial injury to consumers." It claims that Mt. Gox falsely represented to its customers that it would "protect their bitcoins and fiat currency and safely and quickly allow them to buy, sell, trade, or withdraw the same at any time." The exchange also wrongfully induced the plaintiff to supply bitcoin and fiat currency to the exchange, the claim alleges.

The troubles that spurred Mt. Gox to file for bankruptcy in Japan on Friday could also lead the troubled bitcoin exchange to seek the protection of a U.S. court, bankruptcy experts say….

“Given the international scope of Mt. Gox and similar exchanges, one can assume that there will be creditors in the United States and they’ll be seeking remedies against Mt. Gox,” said Howard Seife, global chairman of Chadbourne & Parke LLP’s restructuring practice….

“It would make sense to file a [Chapter] 15 here to at least get a stay to have one organized place to deal with all this litigation because there’s going to be more,” said Evan Hollander, a bankruptcy partner with Arnold & Porter LLP.

Selkis’s focus has been on a product that would presumably have been very helpful in just this situation: insurance for Bitcoin accounts.

He is the founder of Inscrypto, which is still in a private testing period, and he declined an interview request because he didn’t want his reporting on Mt. Gox’s troubles to seem self-interested. Inscrypto’s website describes the company as “Bitcoin’s privately funded, decentralized version of the FDIC. We help you reduce or completely eliminate the risks of owning Bitcoin….”

Besides, people dealing in Bitcoin aren’t exactly risk adverse, and insurance would mean that people who hold Bitcoin would see their costs go up. Now that a few companies are building insured Bitcoin products, it will be interesting to see whether people come to use them in any numbers. “Talk is cheap,” says Mann. “Insurance is expensive.”

Man Sues Over Lost Bitcoins [WSJ]
Mt. Gox Bitcoin Exchange Sued for 'Misappropriation' [Bloomberg]
U.S. Bankruptcy Courts Could Offer Relief to Troubled Mt. Gox [WSJ MoneyBeat]
Will Bitcoin's Libertarians Pay for Private Deposit Insurance? [Bloomberg BW]