Mt. Gox U.S. Affiliate’s Assets Frozen by U.S. Judge

Mt. Gox Inc., the American affiliate of the bankrupt Bitcoin exchange that lost track of hundreds of millions of dollars’ worth of virtual currency, had its U.S. assets frozen by a federal judge in Chicago.

U.S. District Judge Gary Feinerman today issued a temporary order tying up money and property belonging to the affiliate, its ultimate corporate parent, Tibanne KK, and principal Mark Karpeles after a hearing today.

He issued that order without opposition from the frozen entities, who weren’t represented in court, and in the presence of lawyers for the parent, Tokyo-based Mt. Gox Co., which filed for bankruptcy in Japan last month. Feinerman’s order doesn’t cover the bankrupt entity and expires on March 25.

Once the world’s biggest Bitcoin exchange, Mt. Gox Co. said in a U.S. court filing that almost 750,000 customer Bitcoins and 100,000 of its own, about 7 percent of all Bitcoins in existence worldwide, were missing and probably stolen.

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Almost at the same time it was filing for bankruptcy in Tokyo last month, the company, its affiliates and Karpeles were being sued in the U.S. by Gregory Greene of Skokie, Illinois, a depositor claiming he had lost access to about $25,000 worth of currency.

Suing on behalf of the businesses’ U.S. customers, he accused the companies and Karpeles of misappropriation and fraud.

Dallas Filing

Mt. Gox Co. has also sought protection from creditors in the U.S., and yesterday obtained an order from U.S. Bankruptcy Judge Harlin Hale in Dallas shielding it from litigation.

Hale declined to extend that protection to the other defendants sued by Greene, which Feinerman took into account today when he approved the asset freeze. Citing what he called a “very limited record,” Feinerman said Greene established a “sufficient likelihood of success” on his claims to warrant the freeze.

“It may turn out there are no such assets,” Feinerman said. The judge also said his findings in support of the injunction could change as the case before him goes forward.

John Murphy, an attorney for Mt. Gox Co. who was present at the Chicago hearing, declined to comment afterward.

Government Order

One of Greene’s attorneys, Steven Woodrow, told the judge he thought the U.S. government had obtained a court order tying up between $2.1 million and $5 million in assets controlled by Karpeles in the U.S.

After the hearing, lead plaintiff’s lawyer Jay Edelson said he plans to immediately question Karpeles under oath.

“We can finally get some real answers,” Edelson said.

Feinerman set a status conference for March 20. Hale scheduled an April 1 hearing in Dallas to determine whether Mt. Gox Co. can maintain its protections in the U.S. for the duration of its Japanese bankruptcy proceedings.

The case is Greene v. Mt. Gox Inc., 14-cv-01437, U.S. District Court, Northern District of Illinois (Chicago). The U.S. bankruptcy is In re MtGox Co., 14-bk-31229, U.S. Bankruptcy Court, Northern District of Texas (Dallas).

To contact the reporter on this story: Andrew Harris in federal court in Chicago at aharris16@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Andrew Dunn, Stephen Farr

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