MtGox knowingly traded non-existent bitcoins for two weeks, filing shows

MtGox continued trading for at least two weeks despite knowing that it did not hold enough bitcoins to return every customer their money, according to a deposition from the CEO of the embattled bitcoin exchange.

Mark Karpeles, MtGox’s chief executive, gave the deposition to the Northern District of Texas bankruptcy court on Monday 9 March. In it, he explains: “On February 7, 2014, all bitcoin withdrawals were halted by MtGox due to the theft or disappearance of hundreds of thousands of bitcoins owned by MtGox customers as well as MtGox itself.”

It was known before Karpeles’ deposition that MtGox had blamed bitcoin losses due to hacking for the closure of bitcoin withdrawals. But the document shows that it was another two weeks before MtGox halted trading on the exchange itself, when it closed the site without warning on February 25.

In that period, MtGox continued to accept trades and earn commission on them. Users couldn’t cash out their bitcoins, but they could still sell them on the site and attempt to withdraw their money. As a result, the price of bitcoins on the site plummeted over the fortnight, potentially lessening Gox’s liabilities while earning the failing company commission fees.

Jeremy Kirk, of trade publication Computerworld, estimates that those commissions were worth almost $1m over the 19 days the company was trading while knowingly lacking a complete reserve.

While MtGox has pointed to hacking as the reason for its massive loss of bitcoin, the company is quiet as to the reason for a corresponding difference of $27m between stated customer deposits of cash and the amount it was holding.

The latest news of MtGox’s troubles comes against the disappearance of yet another bitcoin exchange. Bitcurex, a polish bitcoin exchange, was apparently hacked on Friday morning. Both the Zloty and Euro exchanges are now offline, and users report seeing the prices of bitcoin shoot up shortly beforehand, suggesting that the site’s coins were removed.