Mt. Gox Suit Judge Loosens Bitcoin Freeze to Chase Assets

A U.S. judge who froze assets belonging to the American affiliate of bankrupt Bitcoin exchange Mt. Gox Co. loosened that restraint to see where some of the digital currency flows.

U.S. District Judge Gary Feinerman in Chicago today revised his temporary order issued March 11 to allow movement -- and possibly tracking -- of small amounts of Bitcoin.

Jay Edelson, a lawyer for Mt. Gox depositor Gregory Greene, told the judge today that he was “trying to find a pot of crypto-gold.” Greene sued the exchange and and its principal, Mark Karpeles, for fraud last month. His lawyers asked for the revised order to look for assets belonging to the U.S. affiliate, Karpeles and a related company, Tibanne KK.

Mt. Gox Co. filed for bankruptcy in Tokyo on Feb. 28 after announcing earlier last month that that it couldn’t account for 750,000 customer Bitcoins and about 100,000 of its own, about 7 percent of Bitcoins worldwide. Mt. Gox said in a statement today that it had located about 200,000 Bitcoins stored in an old-format “wallet” that it had previously counted as missing. The company said its revised count of missing Bitcoins, 650,000, may change depending on the results of an investigation.

Greene, who said he lost access to about $25,000 in Bitcoins, has accused the companies and Karpeles of misappropriation.

Bankruptcy Case

Mt. Gox, which started as a marketplace for illustrated trading cards used to play the game “Magic: The Gathering,” is under investigation by prosecutors and regulators examining the use of the digital currency. The Tokyo-based exchange sought protection from creditors in U.S. Bankruptcy Court in Dallas and a day later obtained an order shielding it from litigation.

Bitcoin last traded at $582.46, according to the CoinDesk Bitcoin Price Index.

Feinerman has said while the bankruptcy court order protects Mt. Gox from the case before him, it doesn’t apply to Karpeles, his Japanese company Tibanne KK or a related company incorporated in Delaware, Mt. Gox Inc.

While lawyers for Mt. Gox Co. asked Feinerman to recognize the Dallas court order on March 11, no attorneys have appeared in the Chicago case for Karpeles, Tibanne or the U.S. affiliate. In a revised complaint on March 14, Greene added as a defendant Mizuho bank, a Japanese lender that held Mt. Gox accounts and processed wire money transfers between the Bitcoin exchange and users in the U.S. and elsewhere.

The judge, who likened the effort to follow the Bitcoin transactions to a sting operation, today extended his temporary restraining order, which was set to expire March 25. The asset freeze remains in place until April 8, with the exception of Bitcoin transactions worth less than $1,000. Edelson didn’t disclose details of how the allowed transactions would be tracked.

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).

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