Mt. Gox Receives Subpoena From Federal Prosecutor: Source(online.wsj.com) |
Mt. Gox Receives Subpoena From Federal Prosecutor: Source(online.wsj.com) |
As for Mt. Gox itself, its principle(s) will be aggressively prosecuted and sentenced. The New York US attorney behind the subpoena is Preet Bharara. Preet is responsible for shutting down online poker and obtaining the longest sentence for insider trading ever handed down, among other such dubious "accomplishments". He has never met a camera he didn't love, and will take the opportunity to thrash not just Mt Gox but also Bitcoin itself in the media.
Yes, because we all know how scrupulous traditional finance is.
I'm fine with Gox getting investigated, too, but justice shouldn't depend on who you are.
The fact the current top comment in this thread is someone slagging off a prosecuter for going after insder traders demonstrates that HN's as dumb an audience as the average tabloid reader when it comes to convincing people that enforcing the law against corrupt Wall Street criminals is a bad thing.
Well,at the time, I wondered how they nailed Spitzer. In retrospect, I suspect this was one of the first parallel construction scenarios.
However, I don't really care if people visit sex workers. Nevertheless, Spitzer was an anti-prostitution crusader. He deserved to lose his job for the hypocrisy.
http://www.justice.gov/opa/pr/2012/February/12-ag-186.html
It's not jail, but then again, I highly doubt Karpeles or anyone at Gox will be imprisoned, either (for a number of reasons).
So the sad fact of the matter is, if someone is a good enough criminal -- for instance, a CEO of a company with dozens of lawyers to advise him, who actually manages to not put anything in writing, and has enough firewalls between him and the activities in question to create reasonable doubt and plausible deniability -- he can totally get away with it.
On the other hand, if someone shows up and it's all amateur hour, and they all but gift wrap a big pile of evidence of their misdeeds, notarize and hand-deliver it to the authorities, we shouldn't hold off on prosecuting them just because smarter, bigger criminals are getting away with it, any more than we should hold off prosecuting the easy homicides just because the hard ones go unsolved.
For any given paywalled article, if you Google the article headline and click on the WSJ link in the results, the full article is displayed.
I've been following this story for a while, and it seems that no one can say for sure if this is embezzlement or gross incompetence. Based on leaked memos it seems to be most people are learning towards the latter, but I'm curious if there's any evidence either way.
Based on the claimed transparency of Bitcoin, I would have expected embezzlement on this scale to have been noticed earlier, or at the very least have people be able to follow the Bitcoin trail to determine what is actually happening.
Am I wrong or just missing something?
But I do not understand how a NY prosecutor can subpoena a Japanese business?
If you offer services to, or engage in financial transactions with, a person in Jurisdiction A, Jurisdiction A can enforce its laws on you. You should not in any way be surprised by this fact.
The U.S. may enforce its laws upon U.S. entities, but it has no authority to do so on e.g. a Japanese one, unless a treaty/agreement exists that facilitates it. This is why China-only companies that engage in IP theft (or vice versa) aren't being hauled into court on the daily. (You wouldn't be surprised if I said China can't enforce its laws on a NY company, right?)
http://www.reuters.com/article/2014/02/26/bitcoin-mtgox-japa...
http://thegenesisblock.com/mt-gox-seizures-linked-silk-road-...
The article implies this wasn't just issued today, it is just being reported now but it says it was actually issued "this month". You know what else happened in that time frame? Charlie Shrem was arrested for Silk Road related Bitcoin charges.
I mean It would be great if they were investigating the insolvency but I'd say there is a good chance it isn't related to that.
Then, when MtGox finally has someone with half a clue patch things & rescan, 700K BTC reappear, and they post on their homepage, "Nevvvvvermind – it was all a bad dream."
If customers would not be able to raise claims, and frauds would get away with impunity, this would quickly destroy any honest businesses in bitcoin, and reduce it to a fringe phenomenon some people use to buy drugs anonymously.
I'm guessing the government really doesn't want to do that, because while it would reduce bitcoin to the underground, it would become even more uncontrolable. Rather, they'll try to canalize it through the existing banking system. Its already hard now to buy bitcoins anonymously, and it will probably become harder.
Keep in mind this means nothing other than that a crime is being investigated. We know a crime took place. It's a good thing it is being investigated.
What we don't know is what crimes are being investigated and the article doesn't provide any of that information.
Soon, Mark Karpeles and/or Tibanne Kabushiki Kaisha and/or Mutum Sigillum LLC are likely to be charged with at least one violation of 18 U.S.C. § 1960 for not having a money transmission license in any state. Even though Karpeles broke state laws, it's a federal crime by extension. He may be extradited from wherever he is to the U.S. to stand trial in federal court.
What's interesting is that Coinbase, BitPay, Dwolla and every other current/former Bitcoin exchange company is in the exact same boat legally speaking, and yet people still trust them because of deliberately misleading statements they've made on a regular basis, such as last night's joint announcement. None of them are operating legally, whatever they may say. But mostly they don't say, because my company is already suing two of the three over this very fact. Many of them can be linked to Mt. Gox; Dwolla has already stopped dealing with Bitcoin as a result of NY DFS's subpoenas to the best of my knowledge; US DHS also investigated Mutum Sigillum LLC and froze its assets.
The irony is that Mt. Gox is most likely in Japan in the first place because of the insane state regulatory structure in the U.S. So our state MTLs push entrepreneurs out, leave consumers high and dry, and make crashes of the sort we're witnessing now more likely. We need a federal regulatory regime; it's a shame that the other entrepreneurs and investors affected--including the ones who run this site--are too cowardly to come out and say it publicly as I have. There's only one exception: Greg Kidd, who is invested in a number of payment companies, including Coinbase, and now works for Ripple.
http://fedpaymentsimprovement.org/wp-content/uploads/Greg_Ki...
Here's my suggestions for what should happen now:
edit sry, heres a screenie: I got some "one time pass" http://imgur.com/6IrmmLo
edit: text from article. Sorry I just hit print screen and auto uploaded by reflex.
Mt. Gox Receives Subpoena From Federal Prosecutor: Source
Bitcoin exchange Mt. Gox has received a subpoena from federal prosecutors in New York, according to a person familiar with the matter, dealing another blow to the embattled marketplace for buyers and sellers of the virtual currency.
Mt. Gox, one of the largest bitcoin exchanges, shut down on Tuesday, underscoring the risks of bitcoin, the virtual currency that has seen a meteoric rise in the past year. The subpoena was sent this month and asked Mt. Gox to preserve certain documents among other things, the person said.
Write to Christopher M. Matthews at christopher.matthews@wsj.com
https://news.ycombinator.com/item?id=7296597
Though not FBI, this is interesting.
In the normal course of events I also would expect money disappearing over that long a timescale to have to have been embezzlement by an employee, and I would certainly consider that a plausible hypothesis here. On the other hand, reading the IRC chat transcript where Karpeles talks about how he's been under so much stress that it's ruining his health, it's obvious he made the classic mistake of trying to work so many hours he couldn't think straight.
So I'm guessing either he delegated the accounts to someone with no oversight and it was an inside job... or he refused to delegate, which meant the accounts were in the hands of someone too tired to be capable of coherent thought, which amounted to the same result as nobody looking at them, and an outside job would suffice.
Moral of this story for customers: don't risk money you can't afford to lose.
Moral of this story for founders: don't try to be a hero and do more than one job's worth of work, especially in a domain where a screwup may cause significant harm.
I was stunned at this blog post (http://antonopoulos.com/2014/02/25/statement-on-mt-gox/) where Andreas Antonopolous said:
"During this time, Mark Karpeles was active on the forums and developer boards and appeared to be implementing fixes to Gox software to address Tx-Mal."
He really should not have been looking for solutions himself.
The hard thing about accounting for these Bitcoins is that we keep track of them via addresses, but Karpeles was robbed at a lower level of abstraction -- via outputs. So he's probably struggling with that.
EDIT: I should have written that my impression is that he's not a thief. I suspect he has been dishonest about what he's known about his company's situation, in the sense that he's probably lied by commission or at least omission. But I don't think he stole anything.
Note that it could also be negligence and fraud. For example, they might have discovered the losses early but hushed them up in hopes of making it up later. That's a classic way massive financial issues happen.
However, the transparency of Bitcoin only helps if it's used that way. There have been proposals to develop approaches so that anybody can externally verify an exchange or "bank". But as far as I know, MtGox hasn't released enough information for other people to verify their story.
When I was a teenager, like many teenagers, I liked to drink. Unfortunately for me, my father disapproved of teenagers drinking; perhaps once every week or two he would count all of his beer bottles to ensure that I was not sneaking any. There were gaps in his accounting, but I never knew exactly when he would account for them.
What was I to do? I devised a simple scheme:
1) Steal a bottle of beer.
2) Drink i^W^W no no, hide it. Hide it in the back of the fridge, or in the pantry.
3) Wait two weeks. [If during step 3 the absence of the beer was discovered, goto step 3a. Otherwise goto step 4]
3a) "What are you talking about Pops, your beer is right here behind the radishes." [goto step 1]
4) Glug glug glug.
[12:02] <JonWickedFire> How much did you lose yourself?
[12:04] <MagicalTux> Well, technically speaking it's not "lost" just yet, just temporarily unavailable
[12:05] <JonWickedFire> Well, how much is unavail for you?
[12:06] <MagicalTux> I'm not even sure
http://www.wickedfire.com/shooting-shit/179038-my-conversati...
[12:02] <JonWickedFire> How much did you lose yourself?
[12:04] <MagicalTux> Well, technically speaking it's not "lost" just yet, just temporarily unavailable
[12:05] <JonWickedFire> Well, how much is unavail for you?
[12:06] <MagicalTux> I'm not even sure
[12:06] <MagicalTux> didn't check my wallet before pushing the site offline
I like this guy. Greg's pdf is well worth reading (and pretty funny at points) if you're interested in this space.
And while I'm not sure I agree with Aaron's tactics, it's clear that there is a huge problem here: it's impossible for new businesses to innovate in the money transmission industry.
Overall, I agree with both Aaron and Greg's assessment of the problem: state money transmission laws are strangling financial innovation. However, I am very wary of placing more power in the hands of a federal government that failed to act in good faith in this space (see HSBC's fines versus the treatment Bitcoin is getting).
And realistically, some sort of unified state money license requirement like the NMLS is a far more likely outcome than letting the federal government to take over these responsibilities altogether.
That's not even counting the serious entrepreneurs who passed on the opportunity to establish a competent exchange because they knew it wasn't possible to establish one legally without tens of millions of dollars.
If they deactivated the paywall for Googlebot, but activated it for visitors, they'd get banned from Google for expertsexchange behavior.
They must figure that random Google visitors are worth more than the people who are clever enough to Google the article titles they want to read to work past the paywall.
what he says before that tells us that
a.) his btc are in the same "situation" as those of regular mtgox users,
b.) he believes his btc and thus everyone else's are "just temporarily unavailable"
Of course we're in wild-speculation territory but it's an interesting creative extreme-scenario exercise.
Actually, I think at this point he had waited too late to ask for competent help. Here we have a custom Bitcoin client, written in what is probably a tangled hairball of PHP. The Bitcoin protocol is already fairly complex, and even Bitcoin software written by competent developers using modern software development methods can be tricky to understand (see btcd for an example of a well-engineered client).
How many engineers could fix that in a reasonable period of time?
Add to that the fact that there are only a handful of competent programmers in the world who also are experts at the Bitcoin protocol, and I'm not convinced that he could have convinced any of them to take on the task. Most of them are already wealthy, and they have a lot of reputation to lose by trying (quite possibly in vain) to fix a dying company.
Mark's biggest mistake was in trying to do this all himself once Bitcoin really took off. So yes, a valuable lesson for entrepreneurs.
... like fines? The fines we end up seeing are paltry compared to the profits of the activity, effectively incentivizing illicit practices
Then the problem that should be addressed is the size of the fines. Consider that can be scaled all the way up to every asset the company has, straight through to the office furniture. The company can even simply be disbanded and the offenders barred from ever setting foot near the industry; their lives ruined to whatever degree necessary.
The point is putting people in a metal cage because of this stuff is nothing more than a fetish. Actually seeking excessive time for it when given prosecutorial discretion is indeed a dubious accomplishment.
To understand this number, lets look at the DOJ claims:
> Between 2006 and 2009, according to DOJ, HSBC failed to monitor $670 billion in wire transfers and $9.4 billion in cash transactions from its Mexico bank operations.
We don't know exactly how much HSBC profited from these specific alleged activities, but even a 1% rate (pretty low if they turned a blind eye, especially on the cash side) would net more than triple the fine. (and yes, profiting 7B and paying 2B in fines is a net profit of 5B)
I do, however, agree that quotes like "X days profit" generally refer to the entire bank's profit and not to the actual activity in question
I don't think it's necessarily possible to link the Dowalla event to Silk Road directly (which was the FBI, not DHS).
[1] http://techcrunch.com/2013/05/16/mt-gox-dwolla-account-money...
"cache:http://online.wsj.com/news/articles/SB10001424052702303880604579405852448992982?"
The U.S. doesn't necessarily have to enforce its laws overseas to go after Mt. Gox. Japan has its own consumer protection laws, and presumably they have something to say about how Mt. Gox has been operating, too. So filing suit in a Japanese court is also a perfectly legitimate option.
Mexico has to agree to hand him over, but once the US has him, they can happily convict him of crimes committed while he wasn't physically present in the US.
[1] http://www.npr.org/2014/02/25/282359473/arrest-of-el-chapo-n...
Similarly, Brazil could convict me of whatever it wanted if I went there. Then it just becomes a diplomatic issue.
The US has a history of extending its jurisdiction to practically anywhere if the Internet is involved. effective enforcement is another matter entirely, though.
>This is why China-only companies that engage in IP theft (or vice versa) aren't being hauled into court on the daily.
"IP theft" is pretty much impossible to achieve. You're thinking of infringement.
Nope, I'm really thinking of theft. And it's quite possible to achieve. In fact, it happens quite often; it's just hard to prove conclusively that it has happened.
I sincerely hope they didn't come out on top of this.
http://techcrunch.com/2013/08/23/feds-seize-another-2-1-mill...
Seizing MtGox's USD funds may have had an effect on SR, but that wasn't the reason why they were seized. It was a money laundering issue, plain and simple. Remember, the funds were seized by DHS and the FBI was in charge of the SR case (which wasn't even against SR as an entity, but the owner/operator as a private citizen). I'm sure the FBI and DHS probably share data, but that would have required a lot of interagency cooperation for what is a pretty small matter. DHS was more concerned with blocking the money laundering possibilities than they were with blocking SR. Granted, DHS may have learned about MtGox from the DEA/FBI while they were investigating SR.
I wouldn't assume the gov't really cares that much about Bitcoin. They just want the players in Bitcoin to play by the existing rules.