FBI Launches Probe Into "Criminal Violations" By Mt.Gox

Tyler Durden's picture

It does not appear that things are getting any better for the virtual currency exchange named after "Magic: The Gathering."


No real reaction yet in price across Bitcoin exchanges.


As Bloomberg reports,

The office of Manhattan U.S. Attorney Preet Bharara and the Federal Bureau of Investigation are probing possible criminal violations tied to the shutdown of Tokyo-based Mt. Gox, once the world’s largest exchange for digital currency transactions, two people familiar with the matter said.




Bharara’s office has requested documents from businesses that provide Bitcoin services and the FBI is reviewing the matter, said the people, who requested anonymity because the matter isn’t public. One of the people said that the matter is in its preliminary stages and isn’t yet a formal investigation.

Bloomberg BusinessWeek summarizes "where did the bitcoins go?"

How did the once-largest Bitcoin exchange lose hundreds of millions of dollars’ worth of the digital currency?

Two words: transaction malleability. A hacker can tinker with the code that makes a Bitcoin transaction happen, so that it looks like it didn’t go through. The person who was supposed to receive a payment then asks again and, in Mt. Gox’s case, is paid again automatically. Mt. Gox has acknowledged this was happening. It seems that someone has been slowly bleeding it for months, leaving it without the funds to pay out legitimate withdrawals. But with the company being pretty tight-lipped about it for now, that’s only the best theory.

Was this a shot from the blue?
Not quite. Mt. Gox has been having problems for months, and people have been complaining about not being able to get their money out of the system since late last year. The company halted withdrawals altogether in early February. So while the number of lost Bitcoins is striking, many people have seen the failure of Mt. Gox as imminent for a while.


Where did the lost Bitcoins go?
In theory, Mt. Gox could begin to track their path by identifying the fraudulent transactions and searching for the wallets the coins ended up in. But no one is putting much faith in the accounting expertise over there at the moment. In any case, many of the tainted coins have likely moved beyond their initial destinations. If there really has been a slow leak from Mt. Gox for a long time, then the coins could have spread to the ends of the earth by now. One thing is certain: They are probably all over the place, just based on the sheer number of coins alleged to have been stolen. They’d amount to about 6 percent of the Bitcoins in existence.

Is this a security problem with Bitcoin itself?
When Mt. Gox described the issue as a bug in the Bitcoin protocol, people didn’t appreciate it. The technical issue at the root of Mt. Gox’s problem didn’t just crop up recently; it seems that Mt. Gox was left vulnerable because it didn’t protect itself against the issue.

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Tinky's picture

fonestar says: "Bullish for Bitcoin!"

Bay of Pigs's picture

Nothing can stop the Fonestar Brigade.

pods's picture

The FBI is taking the speck out of our one eye while looking over the plank with JPM/GS written on it in our other eye.


zaphod's picture

This is bullish for Bitcoin


FEDbuster's picture

"Mt. Gox" rebranded "Mt. Corzine".

TeamDepends's picture

The Honorable Mount Corzine.

zaphod's picture

Why is this bullish for bitcoin?

In today's fiat paper money world, when a bank, exchange or similar entity goes under due to corruption the central bank prints funny money out of thin air to "fix" the problem and make customers whole. However this does two things: 1) it devalues the money of prudent savers by increasing the money supply and 2) it encourages more bankers and the like to be corrupt because customers have no reason to worried about a firm's viability since they know the central bank will bail them out. As a result the cycle continues. 

However in bitcoin the free market works as it should and corrupt entities are weeded out while prudent savers remain untouched. Here Mt. Gox goes under and customers who stupidly trusted them are the ones who lose money. As a result in the future customers demand better accountablilty from their exchanges and only the most honest survive. At the same time me the prudent saver remains whole because there was no bailout entity to devalue my money.

So yes, this is very bullish for bitcoin in the long-term. It is the perfect example of how free markets work, with their ups and downs, which make the entire system stronger and stronger over time. 

When even ZH'ers have lost site of this, it shows how far the US has fallen.

Tinky's picture

It would be bullish if – and only if – TPTB were to allow Bitcoin to develop organically and only step in to punish bad actors when necessary.

Good fucking luck with that.

fonestar's picture


fonestar's picture



I was there to trade my bitcoins on a Japanese exchange
Against a hacker, oh, and an IT guy, both with a PhD
I was tense, I was nervous, I guess it just wasn't my night
Satoshi gave the answers
Oh, but I couldn't get the questions right, -ight, -ight

I lost on Gox, baby (oooh)
I lost on Gox, baby (oooh)

Well, I knew I was in trouble now
My hope of winning sank
Oh, 'cause I lost the red candlestick now
And then the site went blank
I took Dogecoin for one hundred
And then my head started to spin
Well, I'm givin' up Don Crypto
Just tell me now what I didn't win, yeah, yeah

I lost on Gox, baby (oooh)
I lost on Gox, baby (oooh)





redpill's picture

I'm sure the FBI is salivating, this is the perfect opportunity to get every last piece of personal information of every Mt. Gox account holder past and present.

fonestar's picture

And do what with it exactly?  Commence arresting people around the globe using the supranational police force on charges of..... um.... ?

johnQpublic's picture

get the info now and make up a law to be violated later

its the american way

fonestar's picture

How do American laws effect Canadian, Australian, UK investors on a Japanese exchange?

johnQpublic's picture

ask some swiss bankers

for evil and corruption, accept no substitute(for the US.gov and its minions of doom)

fonestar's picture

You seem to think these people are smart and/or powerful.  Don't really see what that is based upon?

johnQpublic's picture

i believe there are very smart and very evil

i think there are no accidents

i believe they do everything for a reason

as for power, fucking aye powerful

like 15,000 horsepower motor on a minibike powerful

out of control rampant crazy powerful

like killng a president, his brother, a civil rights leader, blowing up buildings all with no consequence powerful

fonestar's picture

They're not very powerful and not very bright.  Maybe bright enough to fool the Bieber-listening mind control subjects and CNBC crowd but that's about it.  fonestar is not that worried about them shooting or bombing my Bitcoins to bits.

johnQpublic's picture

rather than bombing, i more picture a facility like the new NSA digs, with a bit farm big enuf to essentially destroy any value it has

they have near infinite tax payer and fresh printed dollars to make a mess of just about anything

sorta like printing benny and the inkjets


and since the bieber clones are a fair portion of the populus, not to mention the cnbc style 'intellectuals' are well and good under their thumb, i'm thinking thats alot of power

not to mention the brilliance to create a population that can even tolerate that mind numbing crap

fonestar's picture

Their scams are looking very 1914-ish to me.  Last time fonestar checked, the year was 2014.

jcaz's picture

LOL- Foney, the longer your rants become, the more you expose yourself as a clueless fuck-

And you wonder how Cisco fired you from their janitorial services?

Good luck in Mom's basement......

fonestar's picture

fonestar does not need luck.  He started off with some basic assertions that have proven correct and will continue to be proven correct.

bobola's picture

I bought all my bitcoin for a song

All in, i said, going long

Safer than gold

That's what I've been told

hard drive stored, what could possibly go wrong?

fonestar's picture

Drug laws will ban all drugs.  Gun laws will ban all guns.  Bitcoin laws will ban all Bitcoins.

The hits just keep coming! 

Gazooks's picture

my thumb drive just exploded

fonestar's picture

That happens to fonestar whenever he hears "Bitcoin" mentioned.

Dr. Destructo's picture

Their power lies within their own game, but step outside that game and you'll see the limits of their power. They have the power of illusion and the force to back it up -they can feed us lies and break down our doors. We, however, have a more potent force on our side called 'inevitability'. Despite how well TPTB contructed their empire of lies it will come crashing down. Shitty fiscal and socioeconomic policies that the oppression machine runs on will cause it to sputter and stop, the dictators we installed to secure our hegemony will be overthrown, and our so-called 'empire' will implode. Picture a wounded bully at the mercy of his many victims that is about to get the curb-stomping of the century; such is the future of the United States where this empire of lies will eventually be destroyed by the international community. It took over a century to build what we have today, but it will take just one hour to destroy.

The U.S. sees this, and it will carry on the illusion for as long as possible.

Presidents aren't where the true power lies, and TPTB can dispose of them very easily. The presidency is just a job to put on your resume for a much higher position that the puppet masters have in store, but even the most powerful fear the people, and it shows.

redpill's picture

The same way American officials can get the Swedish and UK governments to demand extradition of Julian Assange for "questioning."


fonestar's picture

If you bothered to research Bitcoin you would immediately see why this is a non-issue.

Flagit's picture

remind me again, where exactly IS the FBI Toyoko office?




arg, so much for that theory. why exactly does an agency whose priority is the continental unites states.....have 12 asian offices?


frenzic's picture

Fuck you are one dumb sumbitch. Those people naturally would be designated terrorists in which case it is not a problem to come get them in the middle of the night and put them away without any acces to lawyers or anything. Yes western governments (and all the other ones that are in their pockets) are on the same team and no they don't give a shit about "human rights".

fonestar's picture

fonestar peering through the blinds for CSIS officers on the way.

HyBrasilian's picture

Blinds?... In mom's basement?

verbot's picture

 kept on looking for a way to get me thru the ni hi ight but i couldnt get it right...no i couldnt get it righ hi ight... lol...seems a meme when making a world changing concept....

johnQpublic's picture

+1 for having a sense of humor about t

you never did tell me what you use your bitcoins for?

or do you just hoard them?

non-snarky question, just curious

fonestar's picture

fonestar has donated some Bitcoins to worthy causes, purchased some silver using Bitcoins, bought a knife and um.... hoarded the rest.  We're investing in the framework of Bitcoin.  Most of the blockchain-based services have not been developed yet and many have not even been thought of.

johnQpublic's picture

+1 for buying some silver

its my personal fav..old US coins, screw bullion, and i like eagles cause they purty....

i admit i like the idea of it, i really do

but adding complexity to complex systems doesnt seem like a solution to me

and i like the weight of real money in my hand..until you have 70lbs of it, then it gets tough to tote around

i wish i had more faith in .gov, and i wish there were no hackers fucking shit up

but you cant survive on wishes...shit in one hand and wish in the other as pappy used to say

see which gets full faster

DoChenRollingBearing's picture

My only transaction was buying a 0.25 oz Gold Eagle.  I just hold the rest of mine as well.  Which is not that much (I am still an old-fashioned gold guy mainly).

I do look forward to the interesting things going on with the blockchain.  BTC promises to be a great ride.  You know, in an intellectual sort of way.

johnQpublic's picture

I do look forward to the interesting things going on with the blockchain.  BTC promises to be a great ride.  You know, in an intellectual sort of way.


i understand what you are saying, but thats just not me

i am more of a technophobe every year

i'd sooner go to 1850 than 2050

Stackers's picture

The level of incompetence at MtGox was staggering. They lost over 700,000 BTC to a flaw in how their exchanged worked. The system allowed hacker(s) to bleed BTC out MtGox HotWallets and ColdStorage "secure" wallets for over a year.


You should never store coins or fiat in an exchange account. There is no reason to. Any exchange with MtGox's wire transfer policy that was always 1 per month and 1 month to process should never be used.

seek's picture

They claim they lost over 700,000 BTC to the flaw.

They've yet to explain how BTC came out of cold storage via this flaw. Also, every bitcoin's movement is documented in the blockchain, and so far no one has been able to put together the transactions that moved 700K bitcoins from the data.

My bet is when the dust settles, it'll become apparent that the losses due to Gox's implementation error will be a fraction of the claimed amount, and there will be evidence Gox was running an unbacked fractional reserve scam or worse.

johnQpublic's picture

i'm still waiting for the fraud from the ACA website to start hitting the news like the mtgox story is

DoChenRollingBearing's picture

dupe (or would I add another trillion?)

johnQpublic's picture

i figured you meant a trillion times a trillion and that seemed about right

walküre's picture

right up there with "the dog ate my homework"

BTCTalks's picture

They should theoretically be able to track all of the coins.  But considering they couldn't track coin within their own system, it might be a stretch to think they could track the coin lost to a sophisticated criminal(s). It would be interesting to see if this turns out to be an Office Space type scenario where they were simply siphoning small fractions of coin continuoulsy via the trans mal exploit over the course of several years. Thereby creating a synthetic fiat which collapsed.