Mt. Gox Knew It Was Selling Phantom Bitcoin 2 Weeks Before Collapse 263
An anonymous reader writes "Mt. Gox CEO Mark Karpeles wrote in a sworn declaration in the company's U.S. bankruptcy filing he suspected hundreds of thousands of bitcoins were missing on Feb. 7, more than two weeks before it finally halted trading. That means Mt. Gox allowed its customers to continue trading, knowing that its bitcoin stash was wiped out and collecting as much as US$900,000 in trading fees. Since Mt. Gox said it was also missing $27.3 million in cash from customer deposits, it raises the possibility that customers — despite seeing a cash balance displayed in their account — might have actually been buying bitcoins that did not exist, with cash that was already long gone."
Re:The Free Market (Score:4, Informative)
Re:buying nonexisting bitcoins... (Score:2, Informative)
It had absolutely nothing to do with the Bitcoin protocol. The attackers abused a flaw in Mt. Gox's code, not Bitcoin's, to cause them to initiate transactions where it should have failed.
Re:Bitcoin (Score:5, Informative)
Complete bullshit. As a depositor in a bank you are NOT an 'unsecured creditor'. Where does this nonsense come from? Thousands of banks have failed since FDIC was formed 80 years ago, and no depositor has lost any insured money.
Re:Bitcoin (Score:5, Informative)
You know, in 2008, Washington Mutual (aka WaMu) failed. Dead, A lot of people used them, too.
And yet, they're all happily going about their lives - having lost none of their money that was stored at WaMu.
Another bank took over the remains and all of WaMu's customers were automatically integrated in.
For all intents and purposes, the only thing that changed was the name on the envelope and on the card - the money that was deposited was still there, all the other assets were still there, etc.
So for all the banking crises, regulation does help, because instead of bank failures hurting regular joes by losing all their hard earned savings, life pretty much continued on as no one lost their deposits. You put your money in, you can be reasonably assured you will get it out.
Re:Bitcoin (Score:5, Informative)
Not quite true. Nobody has lost any insured money in a bank failure. Up to the FDIC limit. Plenty of people have lost money due to bank failures who had more than the insured amount in their account.
Strangely enough, very few people with balances over the FDIC limit actually lost any money due to the larger bank failures which occurred in 2008 and 2009, because the U.S. government brokered agreements with other large banks to buy their assets whole in exchange for some big tax breaks. Wells Fargo's purchase of Wachovia, for example.
Wells Fargo took on almost $30B in liabilities which would normally have made the purchase impossible, but the U.S. government relaxed some laws and allowed Wells to declare those liabilities against future profits to reduce their tax bill. Essentially, the U.S. government bailed out the bank customers of Wachovia.
However, a good chunk of the bank failures since 2008 were liquidations and any customer with a balance greater than the FDIC limit will have lost the difference.
-Matt