Mt. Gox May Be Reborn, But Will Anyone Trust It?

Last time we checked in on beleaguered Bitcoin exchange Mt. Gox, we waved goodbye as a Japanese court denied the firm's plans to rebuild in the wake of its loss of hundreds of millions of dollars' worth of cryptocurrency, and instead initiated liquidation proceedings. But Mt. Gox still has one hope to live on, however unlikely: A group of investors that has expressed interest in buying the Japan-based exchange will now get the opportunity.

Today, Mt. Gox agreed on a settlement in a pair of lawsuits brought by former customers in the United States and Canada. The class-action lawsuit alleged that Mt. Gox was negligent in losing the funds; if you remember, the exchange announced the loss of a whopping 850,000 bitcoins earlier this year, and then found 200,000 of them a week later. The whole affair didn't help assuage rampant criticism that Mt. Gox was poorly managed, even if former CEO Mark Karpeles tried to blame the whole bankruptcy-inducing affair on Bitcoin itself.

According to Reuters, the settlement hinges on Mt. Gox's sale to a firm called Sunlot Holdings Ltd., which represents a consortium of buyers who were close to striking a deal for the exchange shortly before it entered liquidation. Sunlot has proposed to buy Mt. Gox for one bitcoin, and will work out the settlement thusly:

In return for settling separate class actions, the U.S. and Canadian customers will share in a 16.5 percent stake after Mt. Gox is sold to Sunlot, a firm backed by child actor-turned entrepreneur Brock Pierce and venture capitalist William Quigley.

In addition, the customers will split the 200,000 bitcoins that Mt. Gox said it found after seeking bankruptcy protection, and will also split up to $20 million in fiat currency held by the administrator for Mt. Gox.

The Wall Street Journal reports that, if the settlements are approved, Sunlot will petition the Japanese court overseeing Mt. Gox's bankruptcy to transfer assets to its control, instead of liquidating the firm. Sunlot has argued that liquidation will produce a smaller return for customers, which would likely be true if Sunlot can successfully revive the exchange.

The fact that the customers who brought the lawsuit agreed to equity in the deal suggests that they've either got hope that the new Mt. Gox can succeed, or figure that they've got no other option.

But there is a small glimmer of a better deal: In a rather positive news release today (hat tip to Gawker for spotting it), Sunlot announced that it would entrust Mt. Gox's provisional administrator, Japanese lawyer Nobuaki Kobayashi, with a $10 million fund to "conduct forensic investigations and pursue prosecution of perpetrators."

Oh, and if you know where those 650,000 lost bitcoins went, now's the time to speak up: Sunlot also announced an "incentive bounty of 10% of recovered assets would reward those participating in the recovery."

Of course, the big question is whether or not Sunlot can actually revive Mt. Gox if and when it will be able to take over. Banking institutions rely largely on customers' trust that their money will still be around tomorrow, and that goes doubly so in the relatively insular, laissez-faire Bitcoin community. Rebuilding Mt. Gox's image is a monumental task, and is going to require a transparent overhauling of the exchange's security protocols.

Even then, there remain persistent rumblings that Mt. Gox is a scam, or that its collapse was a conspiracy. (Regardless of whether or not they're true, such rumors do erode customer confidence.) Our Alex Pasternack mentioned one theory back in March, right around the time Sunlot was first thought to be close to a deal:

The back and forth of hypotheticals reminded me of another conspiracy theory I heard recently about the ill-fated Bitcoin exchange Mt. Gox, which, while we're at it, I'll repeat here: its bankruptcy was carefully crafted to drop the price of bitcoins in a fire sale to a new buyer who intends to restart the exchange sometime in the future. At least, I think that was it, but the point is, who knows. (What we do know now at least, according to new bankruptcy papers: Mt. Gox's CEO continued running his exchange well after he knew it had been compromised.)

On /r/bitcoin, which remains one of the more public faces of the Bitcoin community, Bitcoiners have fairly roundly criticized the deal, and more importantly, have been loud in their distrust of Sunlot's motives, as evidenced by this exchange:

Echoing the sentiment was /u/Sobriket:

In essence, my take of the plan is this:

• Wipe all debts off the table for a laughable 16.5% stake.
• Then use 10% of existing assets to do some sort of investigation, which is likely to result in some extra cash for them since they likely have some information they're not spreading;
• Have no other contractual obligations.
• Sell the debt-free business to someone else

They tried to do all this (without the 16.5% part) without consulting any significant share of creditors first in a backroom deal (see the 28 March GoxDox leak).

Again, Sunlot's proposal still needs to be approved by courts in the US and Japan, and it's as yet unclear how a scenario laid out above would actually play out, and whether or not courts would even allow Sunlot to cash in its own finder's fee before or after the fact. Regardless, Mt. Gox won't be reborn unless customers believe in it, and the exchange has a long way to go if it wants to salvage its image.