Ethical Dilemma

Dec 8, 2017 | 0 comments

“Head of Bankrupt Bitcoin Exchange Could Make Hundreds of Millions from Failure”

According to the article, Mark Karpeles, the former head of what was for a time the world’s largest Bitcoin exchange, could wind up profiting handsomely from the portal’s ignominious 2014 collapse. Those who had owned Bitcoin on the site, on the other hand, stand to lose hundreds of millions of dollars generated by the cryptocurrency’s rising value.

Mt. Gox was one of the first convenient platforms for buying and selling Bitcoin online. Much like a bank, it retained direct control of the Bitcoin that belonged to many of its users. But it shut down in early 2014, claiming that hackers had stolen hundreds of thousands of its customers’ Bitcoins. Karpeles, in addition to being publicly condemned for mismanagement, faces criminal charges of embezzlement in the case.
Nonetheless, according to the Wall Street Journal, Karpeles could make in the neighborhood of $1 billion from the bankruptcy, thanks to Japanese law’s treatment of the Gox Bitcoins.

Article 124 of Japan’s bankruptcy codes required that liabilities be registered at market values when proceedings were opened in April of 2014. At that point, one Bitcoin was worth roughly $500, but the price has since risen to more than $6,300. Mt. Gox later recovered some of the allegedly hacked cryptocurrency, and still holds 202,195 Bitcoins, now worth around $1.5 billion.

But at a September 27 hearing, Karpeles’ lawyer argued that those market gains belonged primarily to the collapsed Bitcoin exchange, not to the users who lost them years ago. According to the Journal’s calculations, based on a higher Bitcoin price earlier this week, selling off Mt. Gox’s remaining Bitcoin holdings at today’s prices while paying back creditors at April 2014 prices could leave a $977 million surplus. According to the Journal, Karpeles’ holding company, Tibanne, owns about 88% of Mt. Gox, meaning he could pocket a large portion of those gains.

According to Fortune’s prior reporting, Japan’s bankruptcy code does allow for liabilities in a bankruptcy to be marked to market values, but the Journal reports that the period for creditors to dispute such decisions has ended.

Note: In addition to the article, please see the video included at the above-referenced internet address.

Discussion Questions

1. As the article indicates, Mark Karpeles, the former head of Mt. Gox, faces criminal charges of embezzlement in the subject case. Define embezzlement.

Embezzlement is the wrongful misappropriation of property (including, but not limited to, money) that has been entrusted to the defendant. Typically, embezzlement carries a greater punishment than does larceny and other forms of theft, since embezzlement constitutes not only a violation of the victim’s property ownership rights, but also a violation of trust.

2. In your reasoned opinion, is Bitcoin legal currency? Why or why not?

This is an opinion question, so student responses may vary. In your author’s opinion, Bitcoin should not be legal currency, since it is represented as currency without being backed by the “full faith and credit” of a particular government, or subject to prudent regulation by a particular government. Perhaps this is why Bitcoin is referred to as a “cryptocurrency,” with “cryptic” being defined as “having a meaning that is mysterious or obscure!”

3. In your reasoned opinion, should Mr. Karpeles be allowed to personally benefit from Bitcoin appreciation referenced in the article? Why or why not?

This is an opinion question, so student responses may vary. If Mr. Karpeles is allowed to personally benefit from the Bitcoin appreciation referenced in the article, it will be due to Japanese bankruptcy law, not United States law. Arguably, justice would not be served in such a situation, since the true owners of the subject cryptocurrency (and not the fiduciary in charge of their property) should benefit from any appreciation in the currency’s value.