Mt. Gox Could Follow Japan Bankruptcy With U.S. Case

Mt. Gox on Friday filed for bankruptcy protection in Japan, and it could be a matter of time before the troubled bitcoin exchange takes the same step on U.S. soil.

According to bankruptcy attorney Howard Seife, who has worked on multiple cross-border bankruptcies, Mt. Gox is a likely candidate for Chapter 15 bankruptcy protection. Chapter 15 of the U.S. Bankruptcy Code is available to foreign companies that have sought protection of their home courts. Chapter 15 allows companies to protect themselves from creditors who may be looking to seize U.S. assets or file lawsuits against them in U.S. courts. It also offers a path for U.S. judges to enforce the orders of their overseas brethren.

Mt. Gox, an exchange for buyers and sellers of the digital currency known as bitcoin, shut down earlier this week. The company lost almost 750,000 of its customers’ bitcoins and around 100,000 of its own, together worth about $473 million at market prices. The company’s lawyers said Friday that Mt. Gox’s debts totaled 6.5 billion yen ($63.6 million) versus assets of 3.84 billion yen.

“Given the international scope of Mt. Gox and similar exchanges, one can assume that there will be creditors in the United States and they’ll be seeking remedies against Mt. Gox,” Mr. Seife, the global chairman of Chadbourne & Parke LLP’s restructuring practice, told Bankruptcy Beat Friday morning. He isn’t involved in the Mt. Gox case.

The U.S. Bankruptcy Code generally sets a low bar to establish jurisdiction for a bankruptcy filing—a company must have property or place of business in the U.S., and such property can be as simple as a bank account.

“The first question is whether Mt. Gox has assets in the United States that need to be protected,” Mr. Seife said. “But even if they don’t, they probably would not want to have to deal with litigation here and would want to channel all claims to the bankruptcy court in Tokyo.”

Mt. Gox could not be reached for comment. A message posted to its website Wednesday from Chief Executive Mark Karpeles asked that “people refrain from asking questions to our staff: they have been instructed not to give any response or information.”

As for timing, Mr. Seife said there’s “no magic” rule. Some companies will launch cross-border court proceedings concurrently; others will wait months to see if the relief is needed.

Regardless of whether Mt. Gox seeks the protection of a U.S. court, Mr. Seife said “given all the secrecy around bitcoins and who holds them,” it will be interesting to watch as customers begin filing claims against Mt. Gox for their missing bitcoin.

“Will holders of bitcoin want to make themselves known and appear? One of the major attributes of bitcoin has been its anonymity,” he said.

Write to Jacqueline Palank at [email protected]. Follow her on Twitter at @PalankJ.