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Japan’s Mizuho in US, Canada suits over Mt. Gox bitcoin losses

Mt. Gox blames systematic attacks on what it acknowledges was lax computer security. Customers suspect a massive fraud.

March 17, 2014 2:38:56 am

Mizuho Bank, one of Japan’s largest lenders, has became ensnared in North American legal fallout from Mt. Gox, once the world’s biggest bitcoin exchange, which collapsed last month after losing nearly half a billion dollars worth of customers’ digital currency.

Lawsuits in the US and Canada represent a new legal front — and a deep-pocketed defendant — in the battle over Mt. Gox, which claims hackers stole huge amounts of its own and its customers’ assets.
Mizuho, the core unit of Mizuho Financial Group Inc, Japan’s second-biggest “megabank” by assets, was added as a defendant on Friday to an existing US lawsuit against Mt. Gox for allegedly aiding in a fraud by providing banking services to the exchange.

Also on Friday, Mizuho was named in a class-action lawsuit in Canada against Mt. Gox, alleging a lengthy security breach at Mt. Gox resulted in “the pilfering of millions of dollars’ worth of its users’ bitcoins. A Mizuho spokeswoman in Tokyo declined comment on Sunday on the lawsuits, filed in Chicago federal court and the Ontario Superior Court of Justice. Tokyo-based Mt. Gox closed its virtual doors on February 25 and three days later filed for Chapter 11-style bankruptcy protection with a Japanese court.

The company said it had likely lost all 750,000 customer bitcoins it was holding, as well as 1,00,000 of its own and ¥2.8 billion in cash. That represents $567 million of vanished assets at current market prices, as well as about 7 per cent of the bitcoins in circulation.
Mt. Gox blames systematic attacks on what it acknowledges was lax computer security. Customers suspect a massive fraud.

On Monday, Mt. Gox filed for a US Chapter 15 bankruptcy, which shields the company from lawsuits in US courts as the Tokyo case proceeds. Mizuho held non-bitcoin currency on behalf of Tokyo-based Mt. Gox and its customers, according to the amended US complaint by Gregory Greene, an Illinois resident who has said he lost $25,000 when Mt. Gox shut down. The US suit accuses Mizuho of knowing of Mt. Gox’s fraud, of not segregating funds that belong to Mt. Gox from those of its customers and of continuing to provide banking services that inflated losses for bitcoin customers. “Mizuho profited from the fraud,” said the complaint.

The Canadian plaintiffs allege that “all non-bitcoin currency received by the Mt. Gox defendants from its users was held in an account or accounts” at Mizuho. In fact, the bank by January was trying to close the exchange’s account.

An unnamed manager at Mizuho bank, in a recording leaked on the internet, asks Mark Karpeles, Mt. Gox’s 28-year-old French CEO, to close his firm’s account with the bank, citing compliance issues and moves by other banks to cut ties with the exchange.

Karpeles told the Mizuho official Mt. Gox was unwilling to cooperate.

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