World’s largest bitcoin exchange files for bankruptcy

The world's largest bitcoin exchange filed for bankruptcy protection in Japan on Friday, saying it had lost about $420 million worth of its customers' bitcoins because of a "weakness" in its system.

Mark Karpeles, the French CEO of Mt. Gox, bowed in contrition at a press conference at the Tokyo District Court and said he was "sorry."

"There was some weakness in the system, and the bitcoins have disappeared. I apologize for causing trouble," he said, according to the Wall Street Journal.

In addition to its bankruptcy issues, Mt. Gox appears to be the subject of a federal criminal investigation in the United States.

Prosecutors in Manhattan issued a subpoena to the exchange in February asking it to preserve documents, the Journal reported on Tuesday. Circle Internet Financial, a startup that in October received the largest first-round venture capital investment of any bitcoin business, told Al Jazeera on Thursday that it had also received a subpoena.

Mt. Gox's bankruptcy marks a low point in the exchange's fall, which began when U.S. authorities seized $5 million from its accounts last summer after accusing the company of failing to follow U.S. money service regulations.

Bitcoin investors and analysts soon became concerned by what they said were Mt. Gox's slow transaction times and opaque accounting practices. After Feb. 7, when the exchange halted withdrawals in the wake of what it said was a distributed denial of service attack, some observers privately expressed fears that Mt. Gox could be insolvent.

That worry was confirmed on Monday, when Ryan Serkis, a bitcoin investor and blogger, leaked a "crisis strategy draft" prepared on behalf of the exchange, which apparently was seeking emergency investments to stay afloat.

"The reality is that Mt. Gox can go bankrupt at any moment and certainly deserves to as a company," the draft stated.

On Friday, Karpeles and his Japanese lawyers said the exchange possessed $37.68 million in assets and $63.67 million in liabilities, not including 850,000 missing bitcoins, an amount worth $476 million on Friday, according to CoinDesk's bitcoin price index.

Of the missing bitcoins, 750,000 belong to customers, and 100,000 belong to the exchange, Mt. Gox said.

Those figures could get even worse: Among its assets, Mt. Gox appeared to be counting $5 million that it believes it is owed by CoinLab, a U.S. bitcoin startup founded by Peter Vessenes, who is the chairman of the Bitcoin Foundation, the currency's de facto lobbying group.

But that sum is tied up in an ongoing breach-of-contract lawsuit filed last year by CoinLab, which has alleged that Mt. Gox inexplicably backed out of an agreement to make CoinLab its sole exchange operator in the U.S.

CoinLab has argued that Mt. Gox owes it $50 million for breaching the contract and at least $25 million in revenue share from its exchange business that it had promised CoinLab as part of the contract, even if it was broken. If approved by a court, that amount would substantially increase Mt. Gox's liabilities.

"We're going through a phase where the industry is growing up,” Circle CEO Jeremy Allaire told Al Jazeera. "The key is just executing on those products and making Bitcoin an easier-to-use financial product for consumers and businesses."