Ripoff or Settlement? Controversy Erupts Over SaveGox Proposal

SaveGox, a group lobbying to revive the shuttered exchange and prevent its liquidation, has distributed an e-mail and document claiming

SaveGox, a group lobbying to revive the shuttered exchange and prevent its liquidation, has distributed an e-mail and document claiming a settlement that meets their objectives.

The e-mail starts off, “As you may soon hear from the press, we’ve filed papers tonight seeking approval of a settlement that has been reached with certain defendants.” It goes on to summarize details of the plan before ending with, “Going through the Japanese liquidation would have taken significant time and expense, and would likely have depleted existing assets and returned only pennies on the dollar.”

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Nearly two weeks ago, MtGox gave up on its bid for rehabilitation and opted for liquidation at the Tokyo court. Reasons offered for the move include the difficulty in holding meetings with creditors spread all over the world, and the absence of realistic rehabilitation plans. Last week, proceedings were commenced.

SaveGox has different plans:

“Mark Karpales CEO of Mt Gox has given up on the idea of rehabilitating the bitcoin exchange in favor of liquidating its assets. He has relinquished control to the Tokyo District Court, which will decide the fate of MtGox in the coming weeks.

We need your help to stop a liquidation, which would be good neither for MtGox creditors nor Bitcoin’s reputation with the general public and regulators!”

SaveGox
The document states that negotiations took place at Edelson PC’s Chicago headquarters, who are handling the case. The plan is spearheaded by MtGox founder Jed McCaleb, former Marketing Chief Gonzague Gay-Bouchery, a number of MtGox customers and Sunlot Holdings Ltd. McCaleb and Gay-Bouchery were initially among the defendants in the suit.

The proposal calls for the following: the distribution of MtGox assets on a proportional basis (by Sunlot Holdings) to affected customers (the amount of assets apportioned to this component is not detailed); customers receiving a 16.5% stake in Sunlot, allowing them to benefit from future dividends or an IPO/buyout; “an Administration and Prosecution Fund” to “manage customer interests and the recovery of the approximately $275 million of stolen customer assets…..capitalized by $10 million (3.6% of stolen assets) in MtGox cash held in trust by Nobuaki Kobayashi”; and “an incentive bounty of 10% of recovered assets would reward those participating in the recovery.”

Recovery of lost or stolen coins through law enforcement authorities has never been successful and rarely showed signs of getting off the ground. Due to the nature of decentralized currency, such is unlikely to happen in the future.

Jay Edelson, lead attorney in the case, concurred with the plan:

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“This is the customers’ best option and the only chance they have for full restitution. Sunlot has expended an incredible amount of energy and good faith to reach this compromise and we are confident in both its team and this plan.”

Some Missing Pieces

Details of the quantity or identity of the “large block of MtGox customers represented by Edelson PC” are not provided. Also absent is any reference to an action or business plan projecting the financials of the proposal.

It will be interesting to hear the response of Nobuaki Kobayashi, the trustee overseeing the liquidation distribution in Japan. Reuters was unable to obtain comment from him, citing today as a holiday in Japan.

Redditors have differed in their opinions of the plan. Some have referred to its backers as vultures and alleged contradictions with other statements. Others are supportive, arguing a greater amount stands to be recovered.

At this time, not much is publicly known about Sunlot Holdings Ltd and their activities. The document mentions John Betts as its CEO, “who as a Wall Street executive, helped build electronic trading platforms for Goldman Sachs and Morgan Stanley.” Reuters describes them as “a firm backed by child actor-turned entrepreneur Brock Pierce and venture capitalist William Quigley.” They have previously offered to buy out the exchange for 1 bitcoin.

(Update: according to a document titled “sunlot holdings proposed rehabilitation plan”, “Sunlot Holdings Limited is a special-purpose investment vehicle registered in Republic of Cyprus and having Republic of Cyprus nationality, and a group of sponsor investors has proposed the purchase of the MTGOX company business through this company.”)

Critics will also point to a misleading title: “Mt. Gox Customers in U.S. and Canada Reach Class-Action Settlement Aiming for Full Restitution”, which gives the sense of this effectively being a decision reached by consensus and a done deal, which it isn’t.

The “New MtGox”

One must also wonder how much customers will be enamored by a “New MtGox” and how realistic is any sizeable yield of returns. Consider: the shattered reputation of its predecessor, its control by previous management and the uphill battle in regaining any market share already snapped up by competitors.

The conflict highlights the difficulties posed by court activities having taken place in two separate jurisdictions, each now vying for control of what appears to be the same pool of assets. One also shouldn’t forget about the U.S.-based bankruptcy filing in Dallas. From a legal perspective, it can be worthwhile to examine which country exercises jurisdiction over the entity and who can truly grant rights to creditors in this case.

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