At first glance, Mt. Gox might not seem like a particularly attractive acquisition. The now defunct Bitcoin exchange imploded earlier this year: Millions of customers’ money went missing, and the foundations of the Bitcoin economy were shaken profoundly. The company has no especially useful technology or intellectual property, is caught up in courts across the globe, and has a brand that is, to put it mildly, damaged.
But this is Bitcoin, and the story wouldn’t be strange enough if things ended there. A group of investors led by Brock Pierce, a child actor who starred in the first two Mighty Ducks movies, wants to buy the exchange for a single Bitcoin. As part of a deal to settle a class-action lawsuit against Mt. Gox, Pierce’s group, Sunlot Holdings, would also commit to trying to recover Mt. Gox’s customers’ losses. The company wants to open a new, global Bitcoin exchange with a physical presence in the U.S., which would put it under the jurisdiction of American regulators.
Why bother rebuilding the shell of a disgraced company rather than just starting a new one? John Betts, a South African investor serving as Pierce’s partner in the venture, agreed to a phone interview. (Pierce initially agreed to discuss his plans with Bloomberg Businessweek but stopped responding to e-mails.) Sunlot’s rationale for getting in on this circus is appropriately Barnum-esque: There’s no such thing as bad press. “This has been something that has gotten worldwide attention and coverage. Even my parents back in my town in South Africa heard about it on their local news,” says Betts. “It’s our belief that we can turn this negative coverage into something quite positive and constructive.”
The group has been trying to buy a part of the exchange well before the Goxalypse. Betts says that Mark Karpeles, Mt. Gox’s chief executive officer, declined to sell them a share of the company in January, and a partnership in which Sunlot would have established a Chinese arm of Mt. Gox fell through. When news broke in February that Mt. Gox had lost all of its customers’ Bitcoins, leading to the prompt shuttering of the company, Sunlot quickly prepared a new takeover plan. The swiftness of the whole thing has led to whispers about a conspiracy, including speculation that Sunlot was involved in leaking the documents that felled Mt. Gox in the first place.
In the months since, Betts and Pierce have been pushing Karpeles to sell. The new takeover plan came together after Japanese authorities decided to liquidate Mt. Gox’s assets. Sunlot then launched a “Save Gox” campaign. Jay Edelson, a lawyer pursuing a class action in Illinois on behalf of Mt. Gox accountholders, agreed that liquidation would have made it almost impossible for American customers to recoup any significant losses. “That really changed the playing field, and it meant that certain interests were then aligned,” says Edelson. “A lot of people had pressure to salvage the company.”
So Edelson and Sunlot scurried to come up with an agreement and presented it to a judge earlier this week. The judge is considering the proposal after a hearing on Thursday, and Betts says they expect a ruling in several weeks. Japanese authorities would also have to approve the deal.
If the agreement goes through, Sunlot will buy Mt. Gox for the token amount of a single Bitcoin (currently worth about $448). It will be in charge of redistributing the company’s existing assets to its customers, who will get a cut of Mt. Gox’s current stash of currency and Bitcoins based on how much they lost. A fund of $10 million will be set aside for Sunlot to use as it tries to recover the lost Bitcoins. If successful, the search could prove lucrative: Sunlot would get 10 percent of what it recovers.
A judge’s approval wouldn’t mean the end of the lawsuits. Edelson’s case will continue, with Karpeles as the target. Two of Mt. Gox’s owners are cooperating with the search as part of the settlement.
The agreement is also structured to give Mt. Gox’s former customers a reason to cheer for its second coming. In addition to recovering lost Bitcoins, they’ll get a 16.5 percent stake in Sunlot. In a particularly optimistic portion of the proposed settlement, Sunlot even lays out what would happen in the case of a future initial public offering.
Aside from its customers, the only thing that will remain of the original Mt. Gox is its name. Betts says Sunlot will throw out all of the code that Karpeles’s company used and build an exchange from scratch. It could be a challenge to persuade new customers to sign up. Many Bitcoin bulls saw the fall of Mt. Gox as a necessary cleansing of the Bitcoin economy, leaving room for real professionals to build trustworthy exchanges. It’s not clear whether Sunlot is well placed to outcompete operations such as the exchange being established by Barry Silbert, the founder of Second Market.
Betts seems to think the settlement would at least give the new Mt. Gox a fighting chance. “If the customers like what we’ve done, and think that we’ve built a good business, hopefully they’ll do business with us,” he says.