Lawyers move quickly to try to prevent Bitcoin "king" from destroying documents

Well it's come to this Bitcoin robber baron Mark Marie "MagicalTux" Robert Karpelès has had his assets in the U.S. frozen by Judge Gary Feinerman, a U.S. federal judge sitting on the bench at the U.S. District Court for the District of Northern Illinois.

For now the freeze only applies to Mr. Karpelès American assets, which were also the subject of a Monday U.S. Chapter 15 bankruptcy by the law firm of Baker McKenzie.  In the filing Mt. Gox -- once the world's top Bitcoin exchange -- reasserts its claim that it has no idea where all the customer Bitcoins went, saying it only has ¥3.84B ($38.7M USD) in assets (including net worth of its bitcoins versus ¥6.5B ($63.9M USD) in liabilities.

Mr. Karpelès owns a trademark granting exclusive rights to use the term "bitcoin" commercially in Europe.  According to reports he was also fond of employees referring to him as the "king of Bitcoin".  Monday's filing states:

MtGox suspended all trading after internal investigations discovered a loss of 744,408 bitcoins presumably by the method of theft.

MtGox Chapter 15 Filing by ronfm

It's worth noting the legalese here -- the filing doesn't say how soon after discovering the "loss" that trading was halted.  Evidence suggests that Mr. Karpelès knew of the "missing" coins as of Oct. 2013, when the last trade went through.  The wording of the filing makes it sound as if it was filed immediatedly, but if you read carefully it could happen days or even months after the discovery.

Nor does the release say the Bitcoins were surely stolen.  It says they "presumably" were stolen -- they could be sitting in Mr. Karpelès own personal wallet and the state wouldn't technically be a lie.

A federal court refused to grant bankruptcy protections to Mr. Karpelès' Tibanne KK.

The bankruptcy filing was a relatively blatant move to try to block the pending customer class action lawsuit filed by Graham Greene of Chicago, who claims to have lost $25,000 USD worth of Bitcoins when the exchange declared its (supposed) insolvency.

But the grant of Chapter 15 status, won't be officially recognized until April 1, giving Mr. Graham's attorney's ample time to work:

Approval of Mt Gox's Chap. 15 Bankruptcy by steven_musil

On Wednesday one of Mr. Graham's lawyers -- Christopher Dore of the Edelson law firm filed an emergency request for freezing the assets of Mt. Gox KK, Tibanne KK, and Mr. Karpelès himself (who owns 88 percent of Mt. Gox and all of Tibanne).

The Judge told the plaintiff's lawyer that he could not freeze the assets of Mt. Gox as it had filed for Chapter 15 protection.  But it said he could freeze the assets of Mr. Karpelès and Tibanne KK -- the parent company of Mt. Gox, named after Mr. Karpelès' cat.

Mr. Dore, Esq. was pleased with this development stating to ArsTechnica:

Our view is that these companies are alter egos of each other, including Karpeles. He is those companies and they are him, so we should be able to get a lot of information about what has happened.  We will be issuing written discovery in the next day or two to all of those entities and to Mr. Karpeles himself, and we will be issuing deposition.

In addition to the temporary restraining order, the judge granted expedited discovery, which allows Mr. Graham's legal team nearly instant access to Mr. Karpelès company and personal accounts and data, to minimize the window for him to cover up potential crimes.  Mr. Dore, Esq. states:

[The need for expedited discovery] is more [due to] the urgency of the facts and circumstances of this case.  There is an enormous amount of money and bitcoin missing. There is a lot of speculation that there has been money moving out of MtGox accounts, and frankly, we have alleged fraud in this case. When that was raised in court this morning the representatives of MtGox KK did not dispute that fact. We may add additional defendants, possibly including [MtGox’s] bank.

Meanwhile pressure is mounting on Judge Harlin Hale in the U.S. District Court for the Northern District of Texas.  In the Dallas, Texas courtroom earlier this week Steven Woodrow, Esq. a lawyer with Edelson's Denver law office, put forth an official claim of fraud for the first time in court, stating:

This case involves a massive fraud.  They claim incredibly that they will preserve assets and protect assets by entrusting the servers and other property to Mr. Karpeles. Respectfully, your honor, that is the definition of the fox guarding the henhouse.

That argument in part, convinced the Texas judge to only grant preliminary protections to MtGox KK, not its alter-egos.  And in turn that means that it will likely have little chance to destroy documents, raising the likelihood that the truth regarding Mr. Karpelès will emerge.

So while he he gets to live the good life, though, at his luxury apartment in Japan...

La Tour
La Tour Aobadai -- luxury Tokyo high rise -- is Mr. Karpelès home for now.
[Image Source: RealEstate-Japan]

...eating delicacies....

Have a beer -- it's on the customers!
[Image Source: Mark Karpelès on Flickr; Fair Use clause TITLE 17 > CHAPTER 1 > § 107]

Karpeles eating
Where are the Bitcoins?  Maybe he ate them.
[Image Source: Mark Karpelès on Flickr; Fair Use clause TITLE 17 > CHAPTER 1 > § 107]

Those happy days may soon be at an end, as he will be forced to either reveal the truth, or face felony fraud charges for obstructed civil proceedings.

Sources: ArsTechnica, Reuters

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