Mt. Gox Knew It Was Selling Phantom Bitcoin 2 Weeks Before Collapse

An anonymous reader writes "Mt. Gox CEO Mark Karpeles wrote in a sworn declaration in the company's U.S. bankruptcy filing he suspected hundreds of thousands of bitcoins were missing on Feb. 7, more than two weeks before it finally halted trading. That means Mt. Gox allowed its customers to continue trading, knowing that its bitcoin stash was wiped out and collecting as much as US$900,000 in trading fees. Since Mt. Gox said it was also missing $27.3 million in cash from customer deposits, it raises the possibility that customers — despite seeing a cash balance displayed in their account — might have actually been buying bitcoins that did not exist, with cash that was already long gone."

Comments

Bitcoin

[roninmagus]

I'm all for what bitcoin is trying to achieve. But this is just a news story about an exchange which didn't know what it was doing, trading in a currency that hasn't been fully proven, operating in an unknown capacity from somewhere in Japan, and without any oversight at all. That's like millions of people asking my buddy Joe who lives in a trailer to hang onto their money for them. Oh no, bad decisions were made?

Re:Bitcoin

[rudy_wayne]

Yeah, those fools should have definitely given their money to the pros.
You know what, that's too much sarcasm for me to fart out at once. This sounds essentially like the subprime mortgage crisis. And a lot of other banking crises. It doesn't seem totally insane to me to trust your friend Joe in a trailer over the banking industry: when he runs off with my money, at least he might go to jail rather than getting millions in rewards.

As much as people (including me) like to hate on banks, when was the last time you actually lost money? When was the last time you put money in a bank and they "lost" all or part of it? When was the last time you put money in a bank and lost all or part of it because the bank was robbed?

Re:Bitcoin

[evilbessie]

Is fraud not specifically doing things against regulations? Without any form of regulation at all it wouldn't be fraud. The SEC are the police but they are paid by the people they police, if not actually being the same people. Bad policing of regulation isn't a problem with the regulations and to draw such comparisons hides the nature of the problem.

Re:Bitcoin

[Ralph Wiggam]

Madoff ran a ponsi scheme masquerading as a hedge fund with SEC reporting requirements and everything.

Hedge funds are a notoriously unregulated part of the finance industry. The reporting requirements are minimal.

Re:Bitcoin

[sstamps]

I'm part of the "regulations crowd", and I most assuredly DO get it.

You point to a number of things in your propaganda which are patently false or misleading.

The first thing is that regulations are not intended to "create some magical inviolate barrier" to fraud and other shenanigans. They are designed to lessen such things, and bring them to light sooner than without. That's all that regulation can really do -- to foster an environment where such things are minimalized, even if they can't be totally eliminated.

The second thing is that the financial sector has been massively DE-regulated over the last two decades (and even farther back than that, if you want to include the removal of usury ceilings in the 70s). The prime reasons why the recent massive financial meltdown occurred aren't due to a failure of regulation, but of a failure TO regulate.

As it relates to BitCoin, REAL regulation would provide that their accounting and security methods were audited regularly, and that they maintain proper reserves of money to meet the payment demands of their clients.

While regulation wouldn't prevent the exchange from failing, it likely would have been caught sooner, and less people would have been impacted for less money.

At the very least, I would never assent to put any significant amount of money in any BitCoin exchange unless it submitted to some kind of third-party auditing and financial standards, absent real regulation. To do otherwise is simply throwing your money down a drain.

Re:Bitcoin

[m.dillon]

What regulations surrounding the dollar? Perhaps you mean regulations on banks and brokerages. Unfortunately, MtGox was neither a bank nor a brokerage. Plus they are run out of Japan, so they are hardly going to be subject to U.S. law.

Customers who got creamed by MtGox were idiots. I feel sorry for them, but sometimes it takes a hard lesson to punch through blind idealism.

-Matt

Re:Bitcoin

[Ralph Wiggam]

When was the last time that a customer of a US bank requested a withdraw and was refused because the bank didn't have the funds available?

Interesting...

[Agares]

I do not see why there are still people out there who keep saying Bitcoin is a good investment. We keep seeing these exchanges fold up and run off with all this money. I know they claimed they were hacked, but how do we know for sure. To me the whole Bitcoin thing is just a way for a few to get rich by ripping off so many others. Also no one should be surprised that they were sold phantom Bitcoins. You have no way of knowing what you actually have on a site like that since you can’t directly access the wallet. It seems like common sense to me, but I guess I will never understand this kind of thing.