Bitcoin trader denied bankruptcy shield

Mark Karpeles, (center) chief executive officer of bitcoin exchange Mt. Gox, leaves Tokyo District Court in February after filing for the company’s bankruptcy, which was denied Wednesday.
Mark Karpeles, (center) chief executive officer of bitcoin exchange Mt. Gox, leaves Tokyo District Court in February after filing for the company’s bankruptcy, which was denied Wednesday.

TOKYO - The Mt. Gox bitcoin exchange in Tokyo is headed for liquidation after a court rejected its bankruptcy protection application.

Mt. Gox said Wednesday that the Tokyo District Court decided the company, which was a trading platform and storehouse for the bitcoin virtual currency, would not be able to resurrect itself under a business-rehabilitation process filed for in February.

“There are no prospects for the restart of the business,” Chief Executive Officer Mark Karpeles said in a statement on the company’s website. The Tokyo District Court dismissed the application for civil rehabilitation Wednesday and appointed an administrator of the company’s assets in place of Karpeles.

The administrator will try to sell the company’s assets, and many creditors, including those who had bitcoins with the exchange, are unlikely to get any money back.

The administrator, lawyer Nobuaki Kobayashi, said in a separate statement that the court probably will order the start of bankruptcy proceedings. How the company is treated will be decided by taking into account factors including whether there is any candidate to buy the business, Kobayashi said.

After Mt. Gox went offline in February, Karpeles said 850,000 bitcoins worth several hundred million dollars were unaccounted for, blaming a weakness in the exchange’s systems.

Later, Mt. Gox found 200,000 of the bitcoins, changing the estimate for the lost virtual currency to650,000 bitcoins, although the exact amount is still under investigation. Mt Gox. has suggested the bitcoins were stolen. The company has not been able to confirm the bitcoin balances of its users.

Bitcoins were created in 2009 by a mysterious figure or group known as Satoshi Nakamoto and are used for transactions across borders without third parties such as banks. They have also become an investment craze.

Mt. Gox said in a statement that bankruptcy proceedings are likely to start in the U.S. along with the action in Japan, but the timing is still unclear. It said there may be a buyer for its business, but that was still undecided.

The Mt. Gox mess has been a setback for the currency’s image because its boosters have promoted bitcoin’s cryptography as protecting it from counterfeiting and theft. But bitcoin proponents have insisted that Mt. Gox is an isolated case.

Japanese legal experts say it would be difficult to prosecute Mt. Gox because its business falls outside the boundaries of existing regulations.

U.S. federal law enforcement agencies are scrutinizing whether bitcoins are being used increasingly in criminal activity such as the now-defunct Silk Road illegal drug marketplace.

Newsweek claimed it had found the creator of bitcoins, but Dorian Satoshi Nakamoto, a California resident, denied in an interview with The Associated Press that he had anything to do with the digital currency.

Information for this article was contributed by Russell Ward of Bloomberg News.

Business, Pages 28 on 04/17/2014

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