Bitcoin as a concept would be attacked by governments under even the best of circumstances. I don't know why the major players in it have to be so dumb and/or unscrupulous as to draw this level of negative attention to it.
As for Mt. Gox itself, its principle(s) will be aggressively prosecuted and sentenced. The New York US attorney behind the subpoena is Preet Bharara. Preet is responsible for shutting down online poker and obtaining the longest sentence for insider trading ever handed down, among other such dubious "accomplishments". He has never met a camera he didn't love, and will take the opportunity to thrash not just Mt Gox but also Bitcoin itself in the media.
Maybe he can use php to roll his own lawyer.
The article says it was served "this month" so I think they are being called to answer for the $10 million or so tied up in seized US accounts earlier and not because they assclowned away 744,000 bitcoins
Why are they dumb and/or unscrupulous? I would hazard that the bright, somewhat-more-scrupulous minds are busy making it big elsewhere. Perhaps traditional finance.
Where were these zealous prosecutors during the global financial meltdown in 2008? It would be nice if people went to jail for fraudelently representing mortgages.
I'm fine with Gox getting investigated, too, but justice shouldn't depend on who you are.
They were cheerfully going after targets, until it turned out that the public are easy to convince that effective prosecuters should lose their jobs if they visit sex workers.
The fact the current top comment in this thread is someone slagging off a prosecuter for going after insder traders demonstrates that HN's as dumb an audience as the average tabloid reader when it comes to convincing people that enforcing the law against corrupt Wall Street criminals is a bad thing.
I don't know if you remember, but many heads of banks were brought before congress to answer for the financial crisis. But it just turned out that many of them had not done anything illegal (or at least, not provably so).
Have you not heard the phrase "too big to fail?" Unfortunately for mt gox, nobody with power relies on it continuing to exist, but they do rely on the continuing existence of a banking system in the US.
"Federal Government and State Attorneys General Reach $25 Billion Agreement with Five Largest Mortgage Servicers to Address Mortgage Loan Servicing and Foreclosure Abuses"
In the US, we have a fetish for proving people guilty. That's not to say our false conviction rate isn't through the roof, but even though everyone knows that someone is totally guilty, we don't do anything unless we can prove it.
So the sad fact of the matter is, if someone is a good enough criminal -- for instance, a CEO of a company with dozens of lawyers to advise him, who actually manages to not put anything in writing, and has enough firewalls between him and the activities in question to create reasonable doubt and plausible deniability -- he can totally get away with it.
On the other hand, if someone shows up and it's all amateur hour, and they all but gift wrap a big pile of evidence of their misdeeds, notarize and hand-deliver it to the authorities, we shouldn't hold off on prosecuting them just because smarter, bigger criminals are getting away with it, any more than we should hold off prosecuting the easy homicides just because the hard ones go unsolved.
I've been following this story for a while, and it seems that no one can say for sure if this is embezzlement or gross incompetence. Based on leaked memos it seems to be most people are learning towards the latter, but I'm curious if there's any evidence either way.
Based on the claimed transparency of Bitcoin, I would have expected embezzlement on this scale to have been noticed earlier, or at the very least have people be able to follow the Bitcoin trail to determine what is actually happening.
My gut feeling, speaking as an outsider reading the news, is Karpeles was never dishonest, just hopelessly out of his depth and too stubborn to ask for help.
In the normal course of events I also would expect money disappearing over that long a timescale to have to have been embezzlement by an employee, and I would certainly consider that a plausible hypothesis here. On the other hand, reading the IRC chat transcript where Karpeles talks about how he's been under so much stress that it's ruining his health, it's obvious he made the classic mistake of trying to work so many hours he couldn't think straight.
So I'm guessing either he delegated the accounts to someone with no oversight and it was an inside job... or he refused to delegate, which meant the accounts were in the hands of someone too tired to be capable of coherent thought, which amounted to the same result as nobody looking at them, and an outside job would suffice.
Moral of this story for customers: don't risk money you can't afford to lose.
Moral of this story for founders: don't try to be a hero and do more than one job's worth of work, especially in a domain where a screwup may cause significant harm.
Note that it could also be negligence and fraud. For example, they might have discovered the losses early but hushed them up in hopes of making it up later. That's a classic way massive financial issues happen.
However, the transparency of Bitcoin only helps if it's used that way. There have been proposals to develop approaches so that anybody can externally verify an exchange or "bank". But as far as I know, MtGox hasn't released enough information for other people to verify their story.
Thanks for the insight, I still thought the Bitcoin protocol would have had enough transparency to make the case clear as to whether or not this is a situation of dishonesty or incompetence. I guess the protocol does not provide the level of transparency I assumed.
New York wants to be the big dog in regulating crypto-currency, which almost feels like they are protecting and working at the behest of the banking industry headquartered there.
But I do not understand how a NY prosecutor can subpoena a Japanese business?
But I do not understand how a NY prosecutor can subpoena a Japanese business?
If you offer services to, or engage in financial transactions with, a person in Jurisdiction A, Jurisdiction A can enforce its laws on you. You should not in any way be surprised by this fact.
If you're doing business in New York, then you can be sued there. It's called the doctrine of 'minimum contacts.' Of course, they could choose to ignore the subpoenas, but then the NY DA could presume the worst and issue an arrest warrant for anyone connected with the operation, which would make it difficult for them to visit the US.
For anyone thinking, "O good the government is here to investigate and get our money back" I wouldn't get too excited I'd say this is more likely them wanting to investigate Silk Road related Bitcoin activity than any desire to help those screwed by Gox.
No... people lost a lot of money, including investors and investment funds located in the US. This is a case of the gov't doing their jobs and likely has nothing to do with Silk Road. It might have something to do with the MtGox funds previously confiscated by DHS(?) though.
Wouldn't it be funny if malleability has confused MtGox about its own hot->cold->hot wallet transactions, and it really has way more coins than it knows?
Then, when MtGox finally has someone with half a clue patch things & rescan, 700K BTC reappear, and they post on their homepage, "Nevvvvvermind – it was all a bad dream."
If the government really wants to kill bitcoin, its a bit surprizing that they are pursuing this legally. Instead they should make it such that people cannot sue for their losses. They should define legally that bitcoin is neither money nor commodity, that it is of zero value, and that this is so obvious that it is impossible to commit fraud with it. It's your own fault if you pay money for something such obviously fraudulent. (Not that this is my opinion!)
If customers would not be able to raise claims, and frauds would get away with impunity, this would quickly destroy any honest businesses in bitcoin, and reduce it to a fringe phenomenon some people use to buy drugs anonymously.
I'm guessing the government really doesn't want to do that, because while it would reduce bitcoin to the underground, it would become even more uncontrolable. Rather, they'll try to canalize it through the existing banking system. Its already hard now to buy bitcoins anonymously, and it will probably become harder.
I'm not a lawyer, but what's likely to happen here is the following:
Soon, Mark Karpeles and/or Tibanne Kabushiki Kaisha and/or Mutum Sigillum LLC are likely to be charged with at least one violation of 18 U.S.C. § 1960 for not having a money transmission license in any state. Even though Karpeles broke state laws, it's a federal crime by extension. He may be extradited from wherever he is to the U.S. to stand trial in federal court.
What's interesting is that Coinbase, BitPay, Dwolla and every other current/former Bitcoin exchange company is in the exact same boat legally speaking, and yet people still trust them because of deliberately misleading statements they've made on a regular basis, such as last night's joint announcement. None of them are operating legally, whatever they may say. But mostly they don't say, because my company is already suing two of the three over this very fact. Many of them can be linked to Mt. Gox; Dwolla has already stopped dealing with Bitcoin as a result of NY DFS's subpoenas to the best of my knowledge; US DHS also investigated Mutum Sigillum LLC and froze its assets.
The irony is that Mt. Gox is most likely in Japan in the first place because of the insane state regulatory structure in the U.S. So our state MTLs push entrepreneurs out, leave consumers high and dry, and make crashes of the sort we're witnessing now more likely. We need a federal regulatory regime; it's a shame that the other entrepreneurs and investors affected--including the ones who run this site--are too cowardly to come out and say it publicly as I have. There's only one exception: Greg Kidd, who is invested in a number of payment companies, including Coinbase, and now works for Ripple.
I like this guy. Greg's pdf is well worth reading (and pretty funny at points) if you're interested in this space.
And while I'm not sure I agree with Aaron's tactics, it's clear that there is a huge problem here: it's impossible for new businesses to innovate in the money transmission industry.
Overall, I agree with both Aaron and Greg's assessment of the problem: state money transmission laws are strangling financial innovation. However, I am very wary of placing more power in the hands of a federal government that failed to act in good faith in this space (see HSBC's fines versus the treatment Bitcoin is getting).
And realistically, some sort of unified state money license requirement like the NMLS is a far more likely outcome than letting the federal government to take over these responsibilities altogether.
If a bank lost everyones money, we would expect governments to subpoena them. This is news like "Sun rises for 1.6425 × 10^13th time in a row" is a headline.
edit: text from article. Sorry I just hit print screen and auto uploaded by reflex.
Mt. Gox Receives Subpoena From Federal Prosecutor: Source
Bitcoin exchange Mt. Gox has received a subpoena from federal prosecutors in New York, according to a person familiar with the matter, dealing another blow to the embattled marketplace for buyers and sellers of the virtual currency.
Mt. Gox, one of the largest bitcoin exchanges, shut down on Tuesday, underscoring the risks of bitcoin, the virtual currency that has seen a meteoric rise in the past year. The subpoena was sent this month and asked Mt. Gox to preserve certain documents among other things, the person said.
[+] [-] downandout|12 years ago|reply
As for Mt. Gox itself, its principle(s) will be aggressively prosecuted and sentenced. The New York US attorney behind the subpoena is Preet Bharara. Preet is responsible for shutting down online poker and obtaining the longest sentence for insider trading ever handed down, among other such dubious "accomplishments". He has never met a camera he didn't love, and will take the opportunity to thrash not just Mt Gox but also Bitcoin itself in the media.
[+] [-] tzs|12 years ago|reply
[+] [-] dopamean|12 years ago|reply
[+] [-] dobbsbob|12 years ago|reply
[+] [-] sliverstorm|12 years ago|reply
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] appleflaxen|12 years ago|reply
I'm fine with Gox getting investigated, too, but justice shouldn't depend on who you are.
[+] [-] rodgerd|12 years ago|reply
The fact the current top comment in this thread is someone slagging off a prosecuter for going after insder traders demonstrates that HN's as dumb an audience as the average tabloid reader when it comes to convincing people that enforcing the law against corrupt Wall Street criminals is a bad thing.
[+] [-] jamesaguilar|12 years ago|reply
[+] [-] jacalata|12 years ago|reply
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] ewoodrich|12 years ago|reply
http://www.justice.gov/opa/pr/2012/February/12-ag-186.html
It's not jail, but then again, I highly doubt Karpeles or anyone at Gox will be imprisoned, either (for a number of reasons).
[+] [-] saalweachter|12 years ago|reply
So the sad fact of the matter is, if someone is a good enough criminal -- for instance, a CEO of a company with dozens of lawyers to advise him, who actually manages to not put anything in writing, and has enough firewalls between him and the activities in question to create reasonable doubt and plausible deniability -- he can totally get away with it.
On the other hand, if someone shows up and it's all amateur hour, and they all but gift wrap a big pile of evidence of their misdeeds, notarize and hand-deliver it to the authorities, we shouldn't hold off on prosecuting them just because smarter, bigger criminals are getting away with it, any more than we should hold off prosecuting the easy homicides just because the hard ones go unsolved.
[+] [-] alexeisadeski3|12 years ago|reply
[+] [-] wernerb|12 years ago|reply
[+] [-] kevingadd|12 years ago|reply
[+] [-] nwh|12 years ago|reply
[+] [-] AngrySkillzz|12 years ago|reply
[+] [-] captainchaos|12 years ago|reply
I've been following this story for a while, and it seems that no one can say for sure if this is embezzlement or gross incompetence. Based on leaked memos it seems to be most people are learning towards the latter, but I'm curious if there's any evidence either way.
Based on the claimed transparency of Bitcoin, I would have expected embezzlement on this scale to have been noticed earlier, or at the very least have people be able to follow the Bitcoin trail to determine what is actually happening.
Am I wrong or just missing something?
[+] [-] rwallace|12 years ago|reply
In the normal course of events I also would expect money disappearing over that long a timescale to have to have been embezzlement by an employee, and I would certainly consider that a plausible hypothesis here. On the other hand, reading the IRC chat transcript where Karpeles talks about how he's been under so much stress that it's ruining his health, it's obvious he made the classic mistake of trying to work so many hours he couldn't think straight.
So I'm guessing either he delegated the accounts to someone with no oversight and it was an inside job... or he refused to delegate, which meant the accounts were in the hands of someone too tired to be capable of coherent thought, which amounted to the same result as nobody looking at them, and an outside job would suffice.
Moral of this story for customers: don't risk money you can't afford to lose.
Moral of this story for founders: don't try to be a hero and do more than one job's worth of work, especially in a domain where a screwup may cause significant harm.
[+] [-] wpietri|12 years ago|reply
Note that it could also be negligence and fraud. For example, they might have discovered the losses early but hushed them up in hopes of making it up later. That's a classic way massive financial issues happen.
However, the transparency of Bitcoin only helps if it's used that way. There have been proposals to develop approaches so that anybody can externally verify an exchange or "bank". But as far as I know, MtGox hasn't released enough information for other people to verify their story.
[+] [-] captainchaos|12 years ago|reply
[+] [-] ck2|12 years ago|reply
But I do not understand how a NY prosecutor can subpoena a Japanese business?
[+] [-] ubernostrum|12 years ago|reply
If you offer services to, or engage in financial transactions with, a person in Jurisdiction A, Jurisdiction A can enforce its laws on you. You should not in any way be surprised by this fact.
[+] [-] anigbrowl|12 years ago|reply
[+] [-] glurgh|12 years ago|reply
[+] [-] fiatmoney|12 years ago|reply
[+] [-] pjan|12 years ago|reply
http://www.reuters.com/article/2014/02/26/bitcoin-mtgox-japa...
[+] [-] pmorici|12 years ago|reply
[+] [-] mbreese|12 years ago|reply
[+] [-] saraid216|12 years ago|reply
[+] [-] fnordfnordfnord|12 years ago|reply
[+] [-] gojomo|12 years ago|reply
Then, when MtGox finally has someone with half a clue patch things & rescan, 700K BTC reappear, and they post on their homepage, "Nevvvvvermind – it was all a bad dream."
[+] [-] fabulist|12 years ago|reply
[+] [-] sugerman|12 years ago|reply
[+] [-] captainmuon|12 years ago|reply
If customers would not be able to raise claims, and frauds would get away with impunity, this would quickly destroy any honest businesses in bitcoin, and reduce it to a fringe phenomenon some people use to buy drugs anonymously.
I'm guessing the government really doesn't want to do that, because while it would reduce bitcoin to the underground, it would become even more uncontrolable. Rather, they'll try to canalize it through the existing banking system. Its already hard now to buy bitcoins anonymously, and it will probably become harder.
[+] [-] theklub|12 years ago|reply
[+] [-] geuis|12 years ago|reply
[+] [-] einhverfr|12 years ago|reply
Keep in mind this means nothing other than that a crime is being investigated. We know a crime took place. It's a good thing it is being investigated.
What we don't know is what crimes are being investigated and the article doesn't provide any of that information.
[+] [-] thinkcomp|12 years ago|reply
Soon, Mark Karpeles and/or Tibanne Kabushiki Kaisha and/or Mutum Sigillum LLC are likely to be charged with at least one violation of 18 U.S.C. § 1960 for not having a money transmission license in any state. Even though Karpeles broke state laws, it's a federal crime by extension. He may be extradited from wherever he is to the U.S. to stand trial in federal court.
What's interesting is that Coinbase, BitPay, Dwolla and every other current/former Bitcoin exchange company is in the exact same boat legally speaking, and yet people still trust them because of deliberately misleading statements they've made on a regular basis, such as last night's joint announcement. None of them are operating legally, whatever they may say. But mostly they don't say, because my company is already suing two of the three over this very fact. Many of them can be linked to Mt. Gox; Dwolla has already stopped dealing with Bitcoin as a result of NY DFS's subpoenas to the best of my knowledge; US DHS also investigated Mutum Sigillum LLC and froze its assets.
The irony is that Mt. Gox is most likely in Japan in the first place because of the insane state regulatory structure in the U.S. So our state MTLs push entrepreneurs out, leave consumers high and dry, and make crashes of the sort we're witnessing now more likely. We need a federal regulatory regime; it's a shame that the other entrepreneurs and investors affected--including the ones who run this site--are too cowardly to come out and say it publicly as I have. There's only one exception: Greg Kidd, who is invested in a number of payment companies, including Coinbase, and now works for Ripple.
http://fedpaymentsimprovement.org/wp-content/uploads/Greg_Ki...
Here's my suggestions for what should happen now:
http://www.thinkcomputer.com/20140214.cfpbcomment.pdf
[+] [-] jnbiche|12 years ago|reply
I like this guy. Greg's pdf is well worth reading (and pretty funny at points) if you're interested in this space.
And while I'm not sure I agree with Aaron's tactics, it's clear that there is a huge problem here: it's impossible for new businesses to innovate in the money transmission industry.
Overall, I agree with both Aaron and Greg's assessment of the problem: state money transmission laws are strangling financial innovation. However, I am very wary of placing more power in the hands of a federal government that failed to act in good faith in this space (see HSBC's fines versus the treatment Bitcoin is getting).
And realistically, some sort of unified state money license requirement like the NMLS is a far more likely outcome than letting the federal government to take over these responsibilities altogether.
[+] [-] mattm|12 years ago|reply
[+] [-] mschuster91|12 years ago|reply
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] tomelders|12 years ago|reply
[+] [-] mcv|12 years ago|reply
[+] [-] negamax|12 years ago|reply
[+] [-] MWil|12 years ago|reply
[+] [-] SDGT|12 years ago|reply
edit sry, heres a screenie: I got some "one time pass" http://imgur.com/6IrmmLo
edit: text from article. Sorry I just hit print screen and auto uploaded by reflex.
Mt. Gox Receives Subpoena From Federal Prosecutor: Source
Bitcoin exchange Mt. Gox has received a subpoena from federal prosecutors in New York, according to a person familiar with the matter, dealing another blow to the embattled marketplace for buyers and sellers of the virtual currency.
Mt. Gox, one of the largest bitcoin exchanges, shut down on Tuesday, underscoring the risks of bitcoin, the virtual currency that has seen a meteoric rise in the past year. The subpoena was sent this month and asked Mt. Gox to preserve certain documents among other things, the person said.
Write to Christopher M. Matthews at [email protected]
[+] [-] mbreese|12 years ago|reply