Federal judge freezes Mt. Gox CEO’s assets

Mt. Gox, a prominent crypto-currency exchange that declared bankruptcy late last month has taken its share of lumps following a security event that claimed up to 7 percent of the global bitcoin supply from its secure servers. And the hits keep on rolling.

On March 12, shortly after the company filed for bankruptcy protection in the United States and Japan, a Federal Judge based in Chicago froze the U.S. assets of Mt. Gox CEO Mark Karpeles in reaction to multiple customer lawsuits brought against the exchange. The freeze will allow time for investigations associated with those suits.

While neither Karpeles nor a lawyer representing him attended the hearing, the plaintiffs asserted that Karpeles had been siphoning money from the exchange for personal use. Presiding Judge Feinerman put a hold on the assets for two weeks, but Wall Street Journal reports that he added a caveat that, "It may turn out there are no such assets."

The lawsuit comes following stronger allegations of fraud from user of the exchange. Earlier this week hackers accessed Karpele’s reddit account and personal blog, releasing what they say is evidence of embezzlement and fraud.

At the same time, Mt. Gox has sought bankruptcy protection and help meeting its fiduciary obligations. In the federal court filing, Mt. Gox CEO Mark Karpeles claimed that the company held approximately $63.9 million in liabilities and approximately $37.7 million in assets following the breach. As a result, Mt. Gox can file for bankruptcy protection under Chapter 15 of the bankruptcy code, which provides help to parties with interests “involving more than one country.”

The Maelstrom of trouble has raise concerns on the safety of digital currencies like bitcoin though Mt. Gox was only an intermediary for the exchange. WSJ reports that in the wake of the mess New York state and other jurisdictions are considering a more formal applications process for exchanges like Mt. Gox.