Tokyo-based Mt. Gox has filed for bankruptcy in the US, just a few weeks after filing for bankruptcy in Japan, in an effort to get Chapter 15 protection from multiple lawsuits in the US, reports Tom Hals for Reuters.
Chapter 15 bankruptcy is fairly uncommon because it is always an extension of a foreign bankruptcy proceeding, and US companies aren’t eligible to file for it. If the US Bankruptcy Court determines that the entity is primarily a foreign enterprise and that bankruptcy proceedings are already taking place in accordance with international agreements, then the courts will acknowledge a limited ability to seize assets so that they don’t interfere with those proceedings. Chapter 15 is meant to encourage foreign investment in the US by giving foreign companies some certainty about what will happen if their business goes under.
Mt. Gox could face class-action suit
Mt. Gox wants that protection because it is already being sued by CoinLab Inc., which is seeking $75 million for breach of contract, and by Illinois resident Gregory Greene who is trying to start a class action lawsuit against Mt. Gox for any US citizen that lost Bitcoins or transaction fees when the company froze its platform in February. Either lawsuit could result in Mt. Gox’s US assets being frozen.
Traders lost approximately 850,000 Bitcoins when Mt. Gox fell apart in February, and now the company says that the loss was the result of an attack that exploited a weakness in the code that Bitcoin is based on. If that claim is true (and many people don’t believe it) it would undermine Bitcoin as a currency and set back the acceptance of crypto-currencies generally.
Japan will regulate Bitcoin, others will likely follow
Regardless of where the main bankruptcy proceedings take place, the unraveling of what was one of the Bitcoin communities most prominent members will bring new pressure to regulate a currency that was literally designed not to be regulated or centrally controlled. Japan has already said that it is working on rules to cover Bitcoin and other digital currencies, and that profits made from trading them will be taxed in the future. New York State’s Department of Financial Services has also said that it is considering regulations so that it can attract legitimate Bitcoin businesses to its state and give investors some confidence that they have some protection if another major platform suddenly goes belly up.