Does anyone have $245 million to revive MtGox? Mark Karpeles, who has pleaded not guilty to charges of money laundering and embezzlement, claims reviving MtGox offers a way to allow creditors to get something from the bankruptcy. Otherwise, the complexity of the bankruptcy will make it hard for creditors to recover losses any time soon, Karpeles claimed in a recent blog.
Claims in the MtGox bankruptcy are based on bitcoin value held by MtGox customers at the time of bankruptcy. While most of the amounts claimed would cover funds spent on purchasing the bitcoins, most creditors claim the capital gains from the bitcoins should be paid to them, a factor Karpeles cited as complicating the claims recovery process.
In July, Karpeles pleaded not guilty to charges on money laundering and embezzlement, for his involvement in the loss of approximately one million bitcoins, which were worth $400 million during the period in which the MtGox bankruptcy was filed.
Why MtGox Is Unique
Capital gains usually do not allow covering all claims in bankruptcy cases, Karpeles noted in his blog, but MtGox is a unique case, as the estimated assets are significantly higher than accepted liabilities.
Numerous MtGox customers filed claims repeatedly after the exchange filed for civil rehabilitation on Feb. 28, 2014, claiming MtGox should be in liquidation bankruptcy as opposed to civil rehabilitation. The court placed the exchange in liquidation less than two months later. Creditors are now wishing for a return to civil rehabilitation.
In addition, CoinLab filed a large claim against MtGox after a U.S. lawsuit sought to repeatedly secure about $75 million from MtGox. The claim is likely to be brought to court and deliberated as long as appeals are possible, which Karpeles said could take another two to 10 years.
Creditors are seeking several things from the bankruptcy that make resolution impossible, Karpeles added.
For one, capital gains have not yet been realized. With bitcoin’s volatility, the 202,000 BTC MtGox held could be worth 10 times more, or that much less tomorrow. The way the liquidator sells the bitcoins could impact the market and drive down the price, fetching only a portion of the current market value.
The trustee, being aware of this fact, has not included bitcoin value in company assets, listing the value as a separate entry, in addition to Bitcoin Cash.
Post-Bankruptcy Capital Gains Not Recognized
Another issue is that bankruptcy law does not recognize post bankruptcy capital gains by the bankrupt as a liability, Karpeles noted. The claims are calculated from the liabilities at the beginning of the bankruptcy, and get converted to JPY. Claims are then static to allow the liquidator to do a distribution so creditors can have an accurate idea of how much of their claim can be paid.
The expected repayment rate as of the last creditors meeting was 2.66% (assets/claims), but that is subject to change depending on the realization of profits from bitcoins held, Karpeles noted, and depending on claims still being assessed.
Pro-Rata Distributions Not Possible
Distributing pro-rata bitcoins to creditors is complex, Karpeles claimed.
There is the CoinLab lawsuit asserting a $75 million claim against MtGox that will act against anything that undermines the claim. CoinLab will have the benefit of any doubt until the suit completes.
In addition, MtGox creditors would have to cooperate more than they have. They are currently working in different directions.
Karpeles said the most obvious goal would be to revive MtGox through Japanese civil rehabilitation, providing new management and ownership. The solution would be similar to the Bitfinex solution, where liabilities were covered by tokens issued to creditors that can be cashed out at any time based on current liabilities.
Such a solution allows those who failed to file a claim to get something, Karpeles said.
MtGox would only need a new management team of three directors, at least one being Japanese, and $245 million needed for expenses. Karpeles offered a breakdown of the expenses on his blog.
It would not be feasible to use part of the 202,000 held by MtGox as the plan would never get through all the obstacles needed for approval, Karpeles claimed.
Karpeles Asks For Ideas
He is seeking ideas on where the amount would be raised. One solution would be to offer the right to MtGox shares.
Another solution would be to launch an ICO to raise the money to revive MtGox. Karpeles sees this as more challenging, as there is no guarantee of raising that amount. While the ICO might not raise the full amount, it could be distributed to creditors, which would be better than nothing.
Karpeles asked if anyone with $245 million wants to purchase MtGox.