Hedge Funds Are Buying Account Holders’ Claims to Speculate on Mt.Gox Payout
In February 2014, the once biggest bitcoin exchange in the world, Mt. Gox, declared bankruptcy after over $460 million worth of bitcoin were allegedly stolen by hackers. Following the bankruptcy declaration, a class action lawsuits against the exchange was filed by former users who had lost bitcoin because of the exchange’s collapse and two months later Mt. Gox’s bankruptcy proceedings began.
During bankruptcy proceedings, company assets are sold off to recuperate as many funds as possible to pay the business’s creditors. In the case of Mt. Gox, former account holders that have lost bitcoin due to the exchange’s collapse make up part of the creditors and are eligible to receive a share of the proceeds from the company’s liquidation.
While company bankruptcies are unfortunate occurrences in the business world, there are some that view bankruptcies as an opportunity to make money. In the case of Mt. Gox, the ones seeing that opportunity are hedge funds.
According to the Financial Times, at least four hedge funds are currently buying or offering to buy former Mt.Gox account holders’ claims on bitcoins lost during the Mt. Gox collapse. The 24,000 claimants are expected to receive no more than 25 percent of their lost funds. However, as the payouts will be in bitcoin, the value of the lost coins has gone up since February 2014 and may rise further in the future, which is precisely why hedge funds have become interested in Mt. Gox’s claims.
As part of the Japanese police’s investigation into the collapse of the exchange, the authorities also launched a case against former Mt. Gox CEO Mark Karpeles under suspicion of embezzlement. During this inquiry, 202,000 bitcoin emerged, which are intended to be used to compensate the exchange’s former account holders.
The timeline of when the claims will finally be settled is still unknown and could easily take well over a year as other Mt. Gox legal disputes are still in progress. However, hedge funds are now offering claimants an easy and immediate solution to recuperate part of their lost funds. They are proposing to purchase claims at 15 percent yen value of each claim in cash in anticipation that the settlement will be somewhere close to 25 percent and that the value of bitcoin will surge adding to their profits once the case is settled.
Daniel Kelman, an attorney representing Mt. Gox creditors and a creditor himself has created a website called mygoxclaim.com with the aim to match claimants with hedge funds that are potentially interested in buying the claims.
As the Mt. Gox saga continues, selling claims for an immediate cash amount as opposed to holding out to see how it all unfolds may be the right option for some. Given the amount of outstanding cases against Mt. Gox, including the $75 million dollar claim by CoinLab, selling claims now may even turn out to be the more profitable move. The estimated 25 percent payout rate is not set is stone and the proceeding could still go on for years before any payments are made to creditors.