Posted on

Mt. Gox Founder Knew of Security Risks Years Before Collapse, Lawsuit Claims

Two traders are suing Mt. Gox founder Jed McCaleb, and allege he knew of “serious security risks” years before 850,000 BTC was stolen in a devastating hack.

Mt. Gox founder Jed McCaleb is being sued by two traders who used the doomed exchange, court documents filed on May 19 show.

Joseph Jones and Peter Steinmetz have accused the ex-CEO of fraudulently and negligently misrepresenting the exchange.

The pair also allege that McCaleb was aware of “serious security risks” back in late 2010 or early 2011 — more than three years before 850,000 bitcoin (BTC) was stolen in an audacious hack. Their complaint adds:

“Rather than secure the exchange, McCaleb sold a large portion of his interest in the then sole proprietorship, and provided avenues to the purchases to cover-up security concerns at the time without ever informing or disclosing these issues to the public.”

Both of the plaintiffs describe themselves as experienced cryptocurrency traders. They said they were reassured by McCaleb following a “dictionary attack” in 2011, where a fraudster stole coins after targeting accounts with weak passwords.

The court document alleges that 80,000 BTC was already missing at that time, and claims that McCaleb sold a majority of his interest in Mt. Gox to Mark Karpeles instead of staying to repair the security issues.

While Jones said he owned 1,900 BTC at the time of Mt. Gox’s bankruptcy in February 2014 (worth $24 million at press time,) Steinmetz said he owned 43,000 BTC — crypto that would be worth more than $542 million at today’s rates. Both men are still in pursuit of their lost funds, and say they would not have used Mt. Gox had they known about the “significant security concerns” that existed in 2011.

In April, Mt. Gox rehabilitation trustee Nobuaki Kobayashi successfully petitioned a Japanese court to extend the deadline for the submission of rehabilitation plans to October 2019.

Meanwhile, back in March, former CEO Mark Karpeles was given a suspended jail sentence after being found guilty of tampering with financial records.

Mt. Gox was once the world’s biggest crypto exchange, and McCaleb later went on to become the founder of Ripple and the co-founder of Stellar.

Posted on

Credit Agricole-Backed Blockchain Settlement Startup Setl Returns After Insolvency Filing

United Kingdom-based blockchain settlement startup Setl has emerged from administration.

Credit Agricole-backed blockchain-based settlement startup Setl has emerged from administration, financial news outlet Finextra reports on May 3.

Per the report, the United Kingdom-based startup has returned following its insolvency filing after its management bought the operating assets, the staff and the intellectual property rights of the company. As Cointelegraph previously reported, Setl filed for insolvency on March 7 with U.K. authorities.

Per the March announcement, the company also appointed business advisory firm Quantuma as their independent administrator. The announcement also pointed out that the company was “seeking to place its ID2S holding with a larger financial services firm, one better placed to provide the capital required to support the growth trajectory.”

According to Finextra, the newly formed Setl limited company has restructured its balance sheet and simplified its business-model aiming to provide blockchain services in partnership with existing financial service providers. Moreover, the operating costs of the company have been reportedly cut and its two development offices in Ipswich and London have been consolidated.

Former Barclays chairman David Walker has been appointed chairman, while honorary governor of the Banque de France Christian Noyer is the lead independent director of the new entity. The report cites Walker explaining what Quantuma’s objectives were:

“The objectives of the appointment of Quantuma LLP by the Board were twofold. Firstly, to act as a neutral party to represent the interests of all its creditors and stakeholders. Secondly, to help shape the future structure to enable the firm to balance its strategic infrastructure holdings and continue its software development activities.”

According to CrunchBase data, Setl has obtained $39 million of funding in three rounds, the last of which ended on Feb. 1, 2018.

As Cointelegraph reported yesterday, the CEO of the London Stock Exchange, one of the world’s oldest stock exchanges, believes that blockchain could have a use in issuing securities and settlement.

Posted on

Quadriga Has Only One Option: Bankruptcy, Auditor Says

The picture does not look bright at all for those who were hoping to re-enter the Canadian Exchange Quadriga CX. A report published on April 1, 2019, by Ernst & Young suggests that the only option for the Exchange is bankruptcy.The Exchange went into a downward spiral after its CEO, Geral Cotten, died, taking with him the secret to access the company’s cold wallet, which had roughly $143 million in cryptocurrencies.

After the courts granted the firm’s representatives a grace period to regularize the situation under the Companies’ Creditors Arrangement Act, a series of discoveries and scandals emerged, including the misuse of users’ funds, unreported expenses, loss of funds, and the theory that the Exchange did not actually have the money it claimed to have.

“During the course of the Monitor’s investigation into Quadriga’s business and affairs, the Monitor became aware of occurrences where the corporate and personal boundaries between Quadriga and its founder Gerald Cotten were not formally maintained, and it appeared to the Monitor that Quadriga funds might have been used to acquire assets held outside the corporate entity.

The Best Thing for Quadriga is What We All Feared

The report filed by Ernst & Young explains that the company’s assets are not sufficient to cover its obligations and since it is impossible to find the keys to the cold wallet, the best choice is to move from a CCAA to the application of the Bankruptcy and Insolvency Act [BIA].

“As set out in previous reports of the Monitor, the current objective of these CCAA proceedings is data and asset recovery. Given the present circumstances, the possibility that Quadriga will restructure and emerge from CCAA protection appears remote. The ongoing investigation to locate and recover assets for distribution to creditors with the -8- intent of optimizing recoveries for the Applicants’ stakeholders can be efficiently administered in a proceeding under the BIA.”

Conforming to this law, the Exchange could sell its assets to pay its debts, allowing a quick solution to the problem taking into account the current situation. Likewise, this judgment would considerably reduce the legal costs associated with the procedures.Finally, the report Calls for the application of an Asset Preservation Order for Mr. Cotten’s estate.

The post Quadriga Has Only One Option: Bankruptcy, Auditor Says appeared first on Ethereum World News.

Posted on

Mt Gox Trustee Denies $400 Million Sale Caused Bitcoin Price Slump

The trustee overseeing the bankruptcy of the defunct Mt. Gox cryptocurrency exchange has denied being the cause of the decline in bitcoin prices since December 2017.

In a Q&A report with creditors released on Mar. 17, Nobuaki Kobayashi discussed the recent sale of some $400 million-worth of bitcoin and bitcoin cash belonging to the Mt. Gox bankruptcy estate.

“Following consultation with cryptocurrency experts, I sold BTC and BCC, not by an ordinary sale through the BTC/BCC exchange, but in a manner that would avoid affecting the market price, while ensuring the security of the transaction to the [greatest] extent possible,” Kobayashi said, using the alternate ticker symbol BCC for bitcoin cash, which is more normally assigned the symbol BCH.

However, Kobayashi refrained from disclosing precise details of how the funds were sold.

The comments come as a rebuttal to recent speculation linking the sale to the losses seen in both bitcoin and the wider cryptocurrency market.

As reported by CoinDesk, Kobayashi announced in a document on Mar. 7 that 35,841 BTC and 34,008 BCH had been sold between December 2017 and February 2018, with some 18,000 BTC having been sold on Feb. 5 alone.

However, the sale has sparked much discussion as to whether the trustee’s actions have been a factor driving down the price of bitcoin, which took a notable dip on Feb. 5 – the same day as the 18,000 BTC sale.

The time span of the ongoing sale also coincides more generally with the slump in bitcoin prices, which dropped from an all-time-high of nearly $20,000 in December 2017 to a recent low just below $6,000 on Feb. 7, according to CoinDesk’s Bitcoin Price Index.

Kobayashi stated in the Q&A:

“Please retrain from analyzing the correlation between the sale of BTC and BCC by us and the market prices of BTC and BCC based on the assumption that the sale was made at the time the BTC and BCC were transferred from BTC/BCC addresses that I manage, as such assumption is incorrect.”

In addition, the trustee also indicated that process for the further sale of the estate’s remaining holding of two cryptocurrencies has not yet been determined. The trustee was still in possession of 166,344.35827254 BTC as of Mar. 5 – worth around $1.3 billion at press time.

The sale marks a milestone in the slow process of resolving the years-long bankruptcy case, following the collapse of Mt. Gox in 2014, when over 700,000 BTC were alleged stolen in a hack, worth around $340 million at the time.

Japanese yen image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

Mt Gox Trustee Sells $400 Million in Bitcoin and Bitcoin Cash

As much as $400 million in cryptocurrencies was sold in the past few months by the bankruptcy trustee of the now-defunct Japanese bitcoin exchange Mt Gox.

The details of the sale were published on March 7 by trustee Nobuaki Kobayashi, revealing that JPY 42,988,044,343 – an amount worth roughly $405 million at press-time prices – was generated. According to the creditor report, the trustee liquidated 35,841.00701 BTC and 34,008.00701 worth of bitcoin cash.

As Kobayashi explained:

“As a result of the consultation with the court, I considered it necessary and reasonable to sell a certain amount of BTC and BCC at this point and secure a certain amount of money for distribution resources, and thus, I sold the amount of BTC and BCC above. I made efforts to sell BTC and BCC at as high a price as possible in light of the market price of BTC and BCC at the timing of sale.”

Indeed, the amount roughly matches the number of claims made against Mt Gox, which collapsed in 2014 amid claims of insolvency. Hundreds of millions of dollars worth of bitcoin were lost at the time, though 200,000 BTC was later found amid the recovery efforts. The exchange’s collapse triggered a global regulatory response, including in Japan, and CEO Mark Karpeles was ultimately charged with embezzlement and data manipulation, to which he pled not guilty last year.

Notably, wallets associated with the Mt Gox trustee saw significant withdrawals between December and February – the period in which they were sold – including 18,000 BTC that was moved on February 5. As CoinDesk previously reported, that day saw steep declines across all cryptocurrency markets, pushing prices down roughly 50% from their 2018 highs.

According to Kobayashi’s report, additional liquidations could be coming, pending approval from the bankruptcy court.

“I plan to consult with the court and determine further sale of BTC and BCC,” he wrote.

As it stands, Kobayashi is in possession of 166,344.35827254 BTC – an amount worth $1.7 billion at press time – as well as about $197 million worth of bitcoin cash.

Bitcoin and yen image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.