Feds Seize Assets of World's Largest Bitcoin Exchange
The problems keep coming for Mt. Gox, the world's biggest Bitcoin exchange. Just days after Gawker revealed a key business partnership had devolved into a $75 million lawsuit, the Department of Homeland Security seized a payment processing account belonging to the company, alleging it lied on financial documents.
According to a warrant issued Tuesday by the U.S. District Court of Maryland, the DHS seized Mt. Gox's account with payments processing service Dwolla after an agent discovered that Mt. Gox did not properly register as a money services company when opening a U.S. bank account in 2011.
Iowa-based Dwolla was an easier way for Americans to exchange cash for bitcoins through Mt. Gox without having to wire money to the company, which is Japanese-based and has struggled to establish an American base. But an affidavit by Homeland Security Investigations Special Agent Michael McFarland alleges that Mt. Gox has been using Dwolla to run an "unlicensed money transmitting business" through a U.S. subsidiary called Mutum Sigillum LLC. This is a federal crime punishable by up to five years in prison.
The warrant alleges Mt. Gox CEO Mark Karpeles failed to disclose that he ran a money transmitting business when opening a bank account with Wells Fargo in the name of Mutum Sigillum, a Delaware company he set up to facilitate Mt. Gox's Dwolla payments. The application asked several questions including "Do you deal in or exchange currency for your customer?" and "Does your business accept funds from customers and send the funds based on customers' instructions?" to which Karpeles responded no.
However, Mutum Sigillum did function as a money transmitter, according to the warrant. Mt. Gox wired money to the Mutum Sigillum's Wells Fargo account from Japan, which was used to pay customers who cashed out through Dwolla. An informant exchanged Bitcoins to dollars on Mt Gox through Dwolla, and bank records showed the transfer was done through Mutum Sigillum.
Money transmitting services are required to register with the Department of Treasury's Financial Crimes Enforcement Network (FinCen), which Mt. Gox has not done. The seizure comes just weeks after FinCen issued new guidelines suggesting certain Bitcoin-related operations qualified as money services and had to be registered. Mt. Gox had negotiated a much-hyped partnership with CoinLab, a start-up that has registered with FinCen, to handle its U.S. transactions, but that fell apart when CoinLab sued Mt. Gox for $75 million for breach of contract.
Mt. Gox has not issued a statement on the allegations, but this latest scandal makes one wonder exactly how shady Mt. Gox, which originally started as an exchange site for Magic The Gathering Cards, is. The company has recently been touting a huge effort to conform to international regulations and transform into a legit business. "We are the leader," Mt. Gox marketing director Gonzague Gay-Bouchery told The Verge, "We have a huge responsibility to do things by the books."
The fact their CEO potentially faces five years in prison for lying suggests otherwise. Fancy Latin name aside, the barely-functioning website of Mutum Sigillum does not seem a very promising backbone on which to build the new Bitcoin Global World Economic Order, especially as Feds seem intent on cracking down on the illicit use of the currency.
Here's the full warrant: