Why “Gox Rising” Shouldn’t be Taken Seriously
For an industry supposedly valuing trustlessness, I’m often surprised at how many are happy to uncritically accept and parrot wild claims at face value.
Today’s lesson in critical thinking comes to us courtesy of Brock Pierce and his “Gox Rising” proposal that has been aggressively pushed in the media lately. Despite its laudable promises, there are plenty of reasons to fundamentally distrust the underlying motivations and actions of the people involved.
It has been a long and complicated journey for MtGox creditors since the ill-fated exchange collapsed in early 2014, with many twists and turns and details which are not obvious unless you’ve been carefully paying attention. As someone who has been paying attention, it is my duty to speak up when someone is preying on this ignorance to push their own narrative.
(I am writing this as a Medium post rather than on the WizSec blog, as these are my personal reactions rather than my usual technical reports.)
Self-proclaimed philanthropist guru Brock Pierce recently announced his intentions to make MtGox victims whole by wanting to do his own civil rehabilitation of MtGox, wherein he promises to:
- value all claims at 100% of their current value,
- explore avenues to recover more of the missing bitcoins,
- fight the CoinLab lawsuit,
- distribute any existing funds to creditors, and
- restart a new exchange from MtGox’s ashes, in which creditors may receive a 16.5% equity stake for free, enabling additional recovery via profits.
All we have to do is let Pierce take control of the assets and rights to MtGox first, and he’ll give us all of this this as soon as possible. Sounds great, right?
But the devil is, as they say, in the details. Upon a closer look, most of Pierce’s charity project falls apart and reveals some disturbing motivations.
- Throughout the MtGox bankruptcy process, the claim valuation was locked at $483 per BTC, which with the increasing BTC price led to the absurd result that the bankruptcy had a “surplus” of assets, which by law would be distributed to shareholders. Creditor efforts such as MtGoxLegal fought long and hard against this and eventually succeeded in getting the case converted back to civil rehabilitation as of June 2018, which enables a fair re-valuation of claims. In other words, creditors themselves already solved this problem.
- Of the still missing 650,000 BTC, Pierce has said “some of it can be found, a lot can be recovered.” As I can without exaggeration claim to be one of the world’s foremost experts on this topic, let me make it clear that Pierce’s claim has no basis in reality and he has no idea what he is talking about. This is a vapid attempt to make people think there are troves of bitcoins out there that the trustee is ignoring but that Pierce can somehow collect.
- The MtGox trustee has already rejected CoinLab’s claim and is fighting their lawsuit, and unless Pierce has made some kind of secret agreement with CoinLab’s Peter Vessenes to drop the lawsuit it’s going to take the same amount of time to play out regardless of who is at the helm.
- Pierce is promising not to use any creditor funds to launch any new exchange but to merely pay them out as soon as possible. As such, this is no different from what the trustee is doing, unless Pierce has some way to meet the requirements of Japanese law faster the trustee (Kobayashi is one of Japan’s most prominent and experienced bankruptcy lawyers).
Hmm. So far it sounds like Pierce is only promising creditors what they are already getting. That leaves the offer of free equity in a new MtGox exchange (which would thus be bootstrapped by a large number of MtGox customers directly incentivized to help it succeed). But if Pierce truly intends to give this away for free, is there any need for any of the other steps above? Why not let the trustee do his thing without disruption, and merely place a cheap bid for the MtGox brand and any usable assets to independently launch his new exchange and generously gift that to creditors?
Therein lies the kicker though. Pierce has convinced himself he already owns MtGox, up to and including being able to lay claim to that “surplus” that used to exist, should he so choose. This is where things take a turn for the dishonest or downright deluded.
As with any good lie, it starts with a grain of truth. Shortly after MtGox collapsed in 2014 and entered civil rehabilitation for the first time (loosely equivalent to bankruptcy protection in this context), Brock Pierce’s company Sunlot approached and negotiated with Mark Karpelès’ Tibanne to acquire and attempt to rehabilitate MtGox. These negotiations were formalized with a letter of intent:
Although Sunlot inserted language such as “binding terms”, the letter of intent is exactly what it sounds like: an outline for how the parties intend to proceed while negotiating an actual agreement. Is is NOT, as Brock Pierce is claiming, a binding sale agreement in itself. This should be obvious even to a non-lawyer as basic information such as the purchase price is not included (nor was any actual payment made).
Another fundamental problem is that since MtGox was already under civil rehabilitation at the time, MtGox could not be entered into any binding agreements without the permission of the court, and especially not sold. Sunlot negotiated to acquire MtGox without going through the court first, rendering the entire attempt invalid.
Realizing this, Karpelès sent Pierce a request to confirm the letter of intent as rescinded in order to clear the way for restarting talks with the blessing of the court. Pierce, however, refused to sign this confirmation and is dishonestly characterizing it as Karpelès reneging on a binding agreement, and is further lying by also disingenuously referring to this “confirmation” as if it were a confirmation of purchase.
This is not some honest misunderstanding; Pierce willfully mischaracterizes, lies and denies reality when it is not in his favor. Similarly, Pierce remains conveniently ignorant about developments in the MtGox case regarding the hundreds of millions of dollars in “surplus”, arguing that he has a claim to those as well.
Pierce quotes the trustee from 2017 as stating that surplus assets go to shareholders, but this referred to the bankruptcy; following MtGox’s conversion to civil rehabilitation in 2018 this has no longer been the case. You would think someone who claims to have been working on this for five years would know such things.
It is in this context that we must view Pierce’s statements about “giving money back to creditors”. He thinks he is currently the legal owner all of that money, creditors’ money, and is expecting a pat on the back for promising to refrain from trying to steal them.
Motivations matter, and no honorable cause can be built on lies.
The Usual Suspects
This isn’t the first time these people pop up together, either. If you’ve been following the news cycles, you may have spotted stories like GoxCorp, which threw a lavish penthouse party to celebrate a supposed new MtGox recovery effort, or you may recall stories about a supposed 35,000 BTC creditor.
These are all from the same small circle of people who have joined forces for the “Gox Rising” venture. GoxCorp was fronted by the lawyer Oliver Wright, who also represents the 35,000 BTC creditor (whose claim has been entirely rejected by the trustee save for $25 and seems to have no legitimate basis). It described itself as an “aggressive litigation start-up”, with a similar list of lofty ambitions as Gox Rising, and with the mindset that there’s no problem that cannot be solved by more litigation.
GoxCorp’s press release mentions two party attendees specifically by name: Brock Pierce, and “Blockchain Beach’s finest social media influencers.”
All of these people — Brock Pierce, Oliver Wright, the so-called 35,000 BTC creditor and even the Blockchain Beach bros — are now involved with Gox Rising either behind or in front of the scenes, claiming to have only all creditors’ best interests at heart and spinning their yarn all over social media.
Would you trade with confidence on an exchange launched by these people?
The Good, the Bad and the Ugly
So where does all this leave us?
The good news is that thanks to significant efforts by creditors, the MtGox civil rehabilitation is already proceeding in as good a direction as can be hoped for. The trustee has rejected and is fighting the large fraudulent and frivolous claims that we know of (such as CoinLab), and MtGox shareholders no longer stand to receive any payouts. All the worst-case scenarios have so far been avoided.
However, there is still a long way to go until creditors will see payouts and the case can finally be closed, and interference from bad faith actors will only prolong this further. There is also the question of whether the trustee intends to sell any more of MtGox’s significant stash of bitcoins, although he seems to have gotten the message that this is something many creditors oppose.
Pierce’s claim to own MtGox may be easily disprovable, but that doesn’t mean he couldn’t or wouldn’t throw sand in the machinery. When publicly refuted by Mark Karpelès on Twitter, Pierce responded with further misrepresentations, non sequiturs and ad hominem attacks.
In the thread, Pierce again seems genuinely uninformed (or is willfully spreading ignorance to confuse people) about several key aspects of the MtGox case, such as believing that Karpelès is “in charge” or that there is still a “$700–800m” at play for shareholders to “pocket”. Karpelès repeatedly corrects him but is only met with further accusations and insults.
More seriously, Pierce apparently threatened Karpelès with “litigating the Gox position” as retaliation for going public with this information, showing a willingness to directly interfere with creditor interests for his own benefit or petty revenge.
As if that wasn’t enough, Pierce has further openly tried to discredit at least one well-known creditor who has spoken out against him, in a clear attempt to damage their reputation as retaliation.
This is not the voice of a man making a serious proposal to handle hundreds of millions of dollars, this is a child refusing to let go of the toy box and who throws a tantrum if he doesn’t get to be the first kid.