Class-action suit charges Mt. Gox with fraud, seeking the return of users' bitcoins

The exchange committed fraud by not properly handling a hacking attack, the suit alleges

A class-action lawsuit has been filed against the Mt. Gox Bitcoin exchange and its owner Mark Karpeles, seeking damages in the hundreds of millions of dollars and the return of bitcoins to users whose accounts were frozen on the site.

The lawsuit lays out a number of claims against Mt. Gox, chief among them that the exchange did not keep users' bitcoins securely stored or adequately detect a theft of those coins. When the online exchange figured out what was going on, it clouded the truth by telling customers there was a computer glitch, the lawsuit claims.

The situation is akin to a bank being robbed and then closing up shop and simply saying "sorry," said Jay Edelson, managing partner at Edelson PC and the plaintiffs' attorney.

The lawsuit was filed Thursday in the U.S. District Court for the Northern District of Illinois by Gregory Greene, on behalf of some 600,000 other people in the U.S. who have used Mt. Gox to buy or sell bitcoins at one point or another.

A spokesman for Mt. Gox did not immediately respond to a request for comment on the lawsuit.

Mt. Gox filed for bankruptcy Friday, amid reports that it may have lost 750,000 of its customers' bitoins, basically all of them, in a hacking attack.

The bankruptcy protection Mt. Gox seeks, however, would not protect it from the charges of fraud in the lawsuit, Edelson said.

Mt. Gox stopped allowing bitcoin withdrawals earlier this month due to what it said was a computer bug afflicting its servers. But the "bug" may actually have been a several-years-long security breach causing the theft of millions of dollars worth of bitcoins, the suit said.

Mt. Gox subsequently halted withdrawals and froze users' accounts, not to fix the problem or protect users, but to plan its exit strategy, Edelson said.

The lawsuit only covers people residing in the U.S. who have used Mt. Gox. A subsequent class-action suit may be filed representing other Mt. Gox users internationally, Edelson said, like Bitcoin holders in Japan, where Mt. Gox is based.

Mt. Gox CEO Mark Karpeles did admit to some weaknesses in the exchange's system, during a Friday press conference at the Tokyo District Court. "I am deeply sorry," he told reporters in Japanese.

Mt. Gox's demise is a blow to Bitcoin, though other exchanges have grown to prominence since Mt. Gox was founded in 2009. Across those exchanges, one bitcoin was trading for roughly US$560 on Friday, according to CoinDesk, which averages Bitcoin trading prices.

Zach Miners covers social networking, search and general technology news for IDG News Service. Follow Zach on Twitter at @zachminers. Zach's e-mail address is zach_miners@idg.com

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Tags Internet-based applications and servicese-commerceMt. GoxBitcoin FoundationlegalCivil lawsuitsinternet

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