Thu, Feb 27, 2014 - Page 15 News List

Japanese authorities start Mt. Gox probe

LOSSES:One problem is that there appears to be a regulatory vacumn in Japan, with no government agency having had oversight of the Tokyo-based bitcoin exchange

Bloomberg

Kolin Burges, right, a self-styled bitcoin trader and former software engineer from London, speaks to reporters while holding a placard to protest against Mt. Gox in front of the building that used to house the digital marketplace operator in Tokyo, Japan.

Photo: Reuters

Japanese authorities began investigating Mt. Gox, the Tokyo-based bitcoin exchange that shut down this week, amid calls for regulation of the digital currency as customers face losses.

Japan’s Financial Services Agency (FSA), Ministry of Finance and police are examining the closure of Mt. Gox, Japanese Chief Cabinet Secretary Yoshihide Suga said yesterday.

Officials from the FSA, the ministry and the Bank of Japan said they did not have responsibility for overseeing bitcoin.

Mt. Gox has been subpoenaed by US prosecutors, the Wall Street Journal reported.

Mt. Gox’s Web site went offline on Tuesday as a document that appeared to be an internal strategy paper surfaced on the Internet saying it lost 744,408 bitcoins, valued at more than US$390 million.

The news triggered renewed calls for more security and consumer protection from US officials, while Democratic Party of Japan lawmaker Tsutomu Okubo called on his government to rectify the lack of regulation for the virtual currency.

“The authorities’ stance that they don’t have responsibility is disgraceful,” Okubo, a former Japanese vice finance minister who also used to work at Morgan Stanley, said in a telephone interview. “We need to establish a legal system.”

The finance ministry is not responsible for overseeing bitcoin because it is not defined as a currency under Japanese law, an official said.

An FSA official said that while the agency is not in charge of bitcoin, it is collecting information and monitoring the matter.

A Bank of Japan official said the central bank is not in a position to regulate the virtual currency.

The Tokyo Metropolitan Police Department is in talks with Mt. Gox customers after it received inquiries from them, a police official said by telephone, asking not to be named in accordance with department policy.

Karl-Friedrich Lenz, a law professor at Tokyo’s Aoyama Gakuin University and a Mt. Gox customer, said the events at the exchange stem from the regulatory vacuum.

“The Mt. Gox case is a good example of what happens if you ignore existing Japanese law requiring a bank license for taking deposits,” said Lenz, adding that he has a “small amount” at the exchange.

“Solid regulation is necessary” for bitcoin to be adopted more widely, he said.

Bitcoin prices surged 10 percent to US$588.05 at 3:24pm in Tokyo yesterday after slumping to as low as US$418.78 on Tuesday, according to the CoinDesk Bitcoin Price Index. Prices have retreated from as high as US$1,151 on Dec. 4 last year.

Mt. Gox “can go bankrupt at any moment, and certainly deserves to as a company,” according to the document, which was posted online by blogger Ryan Galt.

A person briefed on the situation at the company, who asked to remain anonymous because the document is internal, said he believed it is authentic.

There is no contact information on the paper and no one at Mt. Gox has publicly verified its legitimacy.

The exchange went offline to “protect the site and our users,” according to a statement on its Web site, which is otherwise blank.

“We will be closely monitoring the situation and will react accordingly,” the statement said.

Kolin Burges, a bitcoin trader who has been protesting outside Mt. Gox’s office in Tokyo’s Shibuya district for more than a week, said he expects to lose his 311 bitcoins at the exchange.

“I don’t believe they really think they can fix the situation,” Burges said of Mt. Gox in an e-mail. “I think they are probably trying to make the authorities go easier on them.”

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