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Mt. Gox Victims Must Take Claims to Tokyo, Not US, Judge Rules

Since its implosion back in 2014, the Mt. Gox exchange hacks continue to loom large within the cryptocurrency ecosystem. The U.S. District Court for the Eastern District of Pennsylvania determined recently it does not have jurisdiction in a case involving Gox victims and a bank closely associated, in effect condemning victims to redress their grievances at the scene of the crime, Tokyo, Japan.

Also read: Philippines Okays PDAX Crypto Exchange

Gox Victims Must Take Up Claims in Japanese Courts

Gregory Pearce, according to court documents, picked the perfectly worst time to attempt withdrawing $5,900 through Mizuho Bank Ltd of Tokyo, Japan. The bank had the sole US market for Gox withdrawals and deposits at the time. Mizuho and Gox were both under suspicion for crimes, with the bank allegedly thought to be funding organized crime in various aspects. Gox, then processing something like 70% of the world’s bitcoin, was equally under investigation for suspected money laundering.

According to the court decision, “Mizuho facilitated international cash wire transfers from Mt. Gox users into the exchange and processed user requests to withdraw fiat currency from the exchange to their outside bank accounts,” the judge wrote. “When a user wished to deposit money in their Mt. Gox account, Mizuho would accept the payment that had been wired through the user’s outside banks and deposit the funds into Mt. Gox’s Mizuho account. Such wire transfers not only designated Mt. Gox as the beneficiary of the wire and Mizuho as the beneficiary’s bank, but also included the Mt. Gox user’s account number to which the funds were to be directed.” He continued:

Likewise, when a user wished to withdraw fiat currency from their Mt. Gox account, Mt. Gox would provide the request to Mizuho for processing. Such requests included the user’s banking information and the amount to be transferred. Mizuho would then transfer out the requested amount to the user’s outside bank.

Right around this exact time, exchange clients began agitating about not being able to withdraw from accounts. Either unknowingly or willingly, the bank continued to take deposits and collecting requisite fees up until Gox, and not the bank, blocked users. Mr. Pearce was among them. He received notice of a “delay” for international withdrawals.

Mizuho Off the Hook in US

The rest is cryptocurrency history, and the broader community has been fighting Gox and its creditors and receivers to get at funds owed. Mr. Pearce brought a class action against Mizuho, claiming it had balked on its contract. Mr. Pearce also brought claims of fraud and negligence against disgraced exchange CEO and president Mark Karpeles. Unfortunately for Mr. Pearce, he brought his suit in the wrong jurisdiction, Philadelphia.

Mt. Gox Victims Must Take Claims to Tokyo, Not US, Judge Rules — Judge Robert F. Kelly

Mizuho quickly moved to have the claims dismissed on the grounds the bank is a Japanese company operating under Japanese law, and therefore a US court was clearly out of bounds. The bank doesn’t have a single employee in Philadelphia, much less a branch. Other than Mr. Pearce being a resident, the bank’s ties are exactly zero. Judge Robert F. Kelly agreed, granting the dismissal.

The court affirmed not having general jurisdiction in this matter, arguing Mr. Pearce did not establish “a prima facie case for specific jurisdiction over Mizuho.” Beyond even that, it wasn’t clear to Judge Kelly the bank had any idea Mr. Pearce was requesting withdrawal (the spark of the whole matter). What this might mean for US victims in the Gox case as a whole is unclear, going forward. At the very least, the US judicial system is of little use. It appears that for US victims they’ll have to either file in Tokyo proper or hitch their claims to a larger class action suit filed in Japan.

Should US courts assist its citizens in their Gox claims? Let us know in the comments section below.

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Federal Judge Rules ICOs are Securities

“Per the indictment, no diamonds or real estate, or any coins, tokens, or currency of any imaginable sort, ever existed – despite promises made to investors to the contrary,” Federal District Judge Raymond J. Dearie ruled. “Simply labeling an investment opportunity as a ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract – a security – into a currency.”

Billions of Dollars ICO Industry is Governed by Securities Law, Judge Rules

Maksim Zaslavskiy

Prosecutors in the case are touting it as a first. Maksim Zaslavskiy, a Brooklyn businessman, conspired and committed two counts of securities fraud during two ICOs, they allege. In his defense, Mr. Zaslavskiy suggested the law as written was too vague, and claimed the ICOs in question were currencies, and not, in fact, securities.

ICOs, of course, are a relatively novel and new way for startups to raise capital. Taken from the legacy practice of bringing a traditional company to market through an initial public offering (IPO), ICOs skip over much of the friction IPOs have gathered as more laws and regulations are heaped upon them. Should the same standards apply to ICOs, very few, if any, would survive. ICOs are usually characterized by their lack of officialdom, their appeal to every-day investors without regard to designations such as being accredited. This has made for a wealth transfer revolution, but it has also brought upon investors many scams.

Precedence

The ruling set the stage for a jury to make the ultimate determination about whether indeed an ICO, as put forward by Mr. Zaslavskiy, is indeed a security. The judge did make it clear he believed the case fit well within securities law as presently constructed. The ruling, if upheld, could set precedence for future ICO-related suits brought about by both alleged victims and regulators.

Raymond J. Dearie

The defense was hoping to stop the case in its tracks after their client was charged with pushing cryptocurrencies, promising they were backed by diamonds and real estate. Prosecutors could find no evidence to the defense claims, and a judge, rather than ruling on the merits of the case, merely agreed existing law could be applied in this instance if a jury found in favor of the government.

Experts are weighing in on the preliminary decision, insisting this clears the way for the Securities and Exchange Commission (SEC) to get even more aggressive when it comes to ICOs, an industry closing-in on nearly $20 billion raised so far this year. In determining whether a financial product can be classified a security, the SEC often appeals to the a 1946 Supreme Court case which established the so-called Howey Test. Simply put, an asset is a security when an investment of money is handed over to a common business, and that investor expects profits to be siphoned to him by way of another’s toil. Current SEC Chair Jay Clayton, as recently as this summer, has reiterated he believes all such ICOs belong under the securities designation.

Are ICOs securities? Let us know in the comments section below.

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#Blockchain Mt. Gox Victims Must Take Claims to Tokyo, Not US, Judge Rules

Gox Victims Must Take Up Claims in Japanese Courts

Mizuho Off the Hook in US

#Blockchain Billions of Dollars ICO Industry is Governed by Securities Law, Judge Rules

Federal Judge Rules ICOs are Securities

Precedence