Victims and investors are sitting on a trove of Mt Gox claims. Now they’re set to make bank.

When Tokyo-based crypto exchange Mt. Gox was hacked in early 2014, its 25,000 customers abruptly lost access to around 850,000 bitcoins.  

Over the course of the company’s subsequent bankruptcy proceedings, which are now reaching their conclusion after dragging out for close to eight years, some investment firms spied an opportunity.  

While the bulk of the funds lost in the 2014 hack were never recovered, Nobuaki Kobayashi, the trustee in Mt. Gox’s bankruptcy, currently presides over a trove of 141,686 bitcoins (roughly 17% of the total bitcoins lost) with a current market value of over $8.3 billion. That cash is now on the cusp of being redistributed. 

Fortress Investment Group, 507 Capital, Bitcoin Builder and Bitcoinica are among those primed for big paydays from that pot, now that a rehabilitation plan has been finalized. But their paths to this moment have been very different. 

For years, Fortress and 507 have been paying discount rates for claims on crypto stolen from Mt. Gox. 

The Block has previously reported that New York-based Fortress had set aside $100 million to purchase creditors’ claims for up to 80% of their value. 

A person close to the bankruptcy process said that Fortress owns roughly 10% of the total Mt. Gox claims, equal to more than 14,000 bitcoins ($823 million at current prices). One person estimated that the value of the investment will increase by roughly ten times. Fortress did not respond to a request for comment. 

Specialist investment firm 507 Capital has also actively hoovered up claims, paying out roughly $10 million to creditors over the years. Founder Thomas Braziel — who has bought a large portion of claims himself, as well as on behalf of a family office — says the impending payout will multiply that investment by a factor of 40. 

Braziel says he was the largest buyer of claims for years before Fortress came along and piled larger sums of capital into the same trade. He remains the second largest purchaser of claims behind Fortress, he says. 

A reversal of fortunes

Other creditors are due significant windfalls thanks to what can only be described as serendipity. 

The two main examples are the crypto exchanges Bitcoin Builder and Bitcoinica, both of which once used Mt. Gox as a custodian — and saw their customers’ crypto lost to Mt. Gox hacks. 

A list of bankruptcy creditors and their accepted claims, published in May 2016 and obtained by The Block, shows that Joseph Aleksandr Wiener Jones had staked a claim of 43,768.17697344 bitcoins (around $2.56 billion) that was accepted by the trustee. This document also shows claims on types of fiat currency lost in the Mt. Gox hack.  

An unrelated statement from the Department of Transportation in the United States refers to one “Joseph Aleksandr Wiener ‘Josh’ Jones” — suggesting he goes by the name Josh. The LinkedIn profile of Josh Jones describes him as Bitcoin Builder’s founder, and states that the entity is “an exchange for bitcoins ‘locked’ in Mt. Gox” as well as for other bitcoins. The Block reached out to Jones for comment via LinkedIn but he did not respond. 

The Bitcoin Builder website hails the finalized rehabilitation plan and advises users that early distribution will likely happen by Summer 2022. 

“In the meantime, we have started to work with an approved distribution exchange to streamline the process of paying out Bitcoin Builder users,” said the business in a statement, adding that users will have to sign up to an exchange (and go through Know Your Customer or KYC checks) to get their pay-out. 

Because the trustee controls roughly 17% of the 850,000 bitcoins lost, creditors will receive the same percentage of their overall claims — meaning Bitcoin Builder will receive 7338.59 bitcoins (or around $430 million), as well as a portion of its fiat claim. 

The people close to the situation suggest that Jones’s claim covers a substantial personal holding as well as the funds of Bitcoin Builder’s customers. 

The striking thing about the Bitcoin Builder claim is that its customers — who as one person close to events put it, “had their lives ruined over this” — lost more than 80% of their funds when Mt. Gox went down. Yet now, nearly eight years later, the bitcoins they get back will leave them spectacularly in profit. Why? Because the price of bitcoin has ballooned from hundreds of dollars to around $60,000 in that period. 

Let’s say someone lost 100 bitcoin when Mt. Gox went down, with bitcoin’s price at roughly $600. They could expect to get around 17 bitcoin (or $10,200) back. Instead, eight years later, those 17 bitcoins are worth approximately $1 million.

The Mt. Gox victims are, in essence, inadvertent HODLers (a term assigned to investors who hold bitcoin for a long time). 

The same can be said of the customers of Bitcoinica, a Kiwi crypto exchange which also used Mt. Gox as a custodian and that itself went into liquidation following a series of hacks in 2012. According to the NZ Herald, liquidators have been chasing Mt. Gox for repayment of the funds for a decade, on behalf of some 204 creditors. 

According to the May 2016 claims document, Bitcoinica creditors have had claims equal to 64,672 bitcoins (approximately $3.8 billion) accepted by the trustee. So they can expect to receive some $646 million in bitcoin, all being well. 

Such is the size of the cache of crypto owed to Mt. Gox creditors that it’s redistribution has sparked fears of a potential sell-off in bitcoin. 

Braziel isn’t convinced. “Fortress, 507, Bitcoinica and Bitcoin Builder will all either hedge or stay long,” he says. 

KYC concerns

The pay-outs themselves will not be straightforward. One of the people close to the situation said the trustee will select between 5 and 10 major crypto exchanges to manage redistributions, which chimes with the message on Bitcoin Builder’s website. The same person emphasized that the trustee will not be selling bitcoin to make the pay-outs in cash; bitcoin will be sent directly to creditors. 

It is possible that a portion of the tens of thousands of Mt. Gox creditors get tripped up by those exchanges’ KYC processes. “Some might fail, especially if you know the crew that was roaming around bitcoin in 2012,” says the investor close to proceedings. 

Take the case of Joshua Lazernick, who appears in the 2016 claims document with a claim of 248.31 bitcoins (which, with a recovery rate of 17%, equates to around $2.5 million) and a small amount of fiat money. Lazernick was indicted by a grand jury on four counts of receiving child pornography and one count of possession of child pornography in March 2017. In a plea deal in June 2017, he pleaded guilty to one count of receiving child pornography and was later sentenced to 10-½ years in prison, with 20 years of supervised probation. 

For those who pass KYC checks, pay-outs will likely still take a while. One of the people close to proceedings thinks final pay-outs will take place in the third quarter of next year, bringing the curtain down on a formative chapter in crypto lore.