Mt. Gox Sued Over Loss of 744,000 Bitcoins

(CN) - A massive security breach at Mt. Gox allowed hundreds of millions of dollars in bitcoins to be pilfered from the now-bankrupt exchange, users claim in a federal class action.

Lead plaintiff Gregory Greene says the Tokyo-based exchange touted itself as the "world's largest bitcoin exchange," handling "over 80% of all bitcoin trade."

Bitcoin is a digital currency introduced in early 2009, the same year Mt. Gox launched its online trading platform. The website allowed users to buy and sell bitcoins, which are not issued or directly regulated by any central authority or government, according to the lawsuit filed Thursday in Chicago.

The price of the crypto-currency is highly volatile and topped $1,000 last November. It's now at about $566.

But the price on Mt. Gox plummeted after the exchange froze bitcoin withdrawals earlier this month while it purportedly investigated a "bug" or "technical glitch," users say.

"Shortly thereafter, media outlets around the world began reporting that Mt. Gox had actually shut down due to a security breach that went unnoticed for years, which resulted in the loss of hundreds of millions of dollars worth of its users' bitcoins (approximately 744,000 of them)," the lawsuit states. (Parentheses and emphasis in original.)

The exchange filed for bankruptcy protection Friday in Japan. Since the site went dark, users have allegedly been unable to withdraw their bitcoins, which they say just "disappeared."

"The company believes there is a high possibility that the bitcoins were stolen," Mt. Gox reportedly said in a statement.

Greene, who lost about $25,000 in bitcoins, claims Mt. Gox failed to deliver on its promises to "securely store [his] bitcoins in a virtual 'vault' for safekeeping" and to grant him access "at any time."

Mt. Gox CEO Mark Karpeles "was and is aware of the conduct and security problems underlying the widespread loss of bitcoins, and was and is aware that he and his co-defendants were wrongfully obtaining bitcoins for fiat currency by shutting down the Mt. Gox exchange and capturing its users' property," class members say.

They are suing MtGox Inc., Mt Gox KK, Tibanne KK and Karpeles for consumer fraud, fraud in the inducement, negligence, breach of fiduciary duty, breach of contract, unjust enrichment, trespass to chattels, conversion, accounting and constructive trust.

They also seek an order forcing the exchange to unfreeze the digital currency and "immediately make full restitution of all funds wrongfully obtained."

The class is represented by Christopher Dore of Edelson PC in Chicago.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit