Illinois Court hints at nixing Mark Karpeles’ claims in lawsuit brought by former MtGox clients

Maria Nikolova

The parties in the case are directed to proceed on the assumption that Karpeles’s motion to dismiss will be denied.

The Illinois Northern District Court has indicated that it will nix the defense claims made by Mark Karpeles in a case brought by former MtGox clients.

In a brief notice filed on Friday, January 11, 2019, the parties in the case are directed to “proceed on the assumption that Defendant Karpeles’s motion to dismiss will be denied”.

In his motion to dismiss, Karpeles insisted that, under binding Seventh Circuit law and the evidence submitted to the Court, the Illinois Northern District Court lacks personal jurisdiction over him, and the case against him must be dismissed.

According to the defense counsel, the plaintiffs (that is, several former US clients of MtGox) never mention, and therefore abandon, the claim that “Karpeles conducted business throughout this District, the State of Illinois, and the United States.” The alleged wrongful conduct took place in Japan, not in Illinois, the defense notes.

Karpeles is said to have not “purposefully directed his activities at the forum state or purposefully availed himself of the privilege of conducting business in that state”.

Next, the defense proceeds to explain the difference in what Mizuho Bank knew about MtGox’s customers who wired money to the bank and what Karpeles knew. What Mizuho Bank knew and what Karpeles knew about these plaintiffs is very different and compels a different result in this case for Karpeles, his counsel says. Mizuho Bank had knowledge of the plaintiffs’ location. Furthermore, there is no reason to believe that Mt. Gox or Karpeles were given any information on where wire transfers to Mizuho Bank originated.

Procedural difficulties are also mentioned, as the Japanese Government has forbidden Karpeles to leave Japan. Additionally, discovery would be extremely difficult, even impossible.

Finally, the defense counsel addresses the so-called “fiduciary shield” doctrine issues. MtGox was not the alter ego of Karpeles, the defense says. The fiduciary shield doctrine applies here and is yet another basis that precludes the exercise of personal jurisdiction over Karpeles in Illinois, the defense states.

Let’s recall that the fiduciary shield doctrine prevents courts from asserting jurisdiction over a person on the basis of acts taken by that person not on his own behalf, but on behalf of his employer.

“The fiduciary shield doctrine does not protect a defendant who has decision-making authority and a financial stake in the company that directed him or her to a jurisdiction,” the plaintiffs had argued.

Mark Karpeles, however, insists that this doctrine protects him. He requests the Court to dismiss the allegations against him.

Mark Karpeles is being sued in Illinois by US clients of MtGox who accuse him of:

  • intentionally, with gross recklessness, or negligently stealing plaintiffs’ bitcoins and fiat currency;
  • negligence, alleging that Karpeles owed the plaintiffs a duty of reasonable care to prevent improper access and misuse of the plaintiffs’ bitcoins and fiat currency and to allow authorized users complete access to the same and breached those duties;
  • consumer fraud – Karpeles represented that he would protect MtGox clients’ bitcoins and fiat currency and allow them to buy, sell, trade, and withdraw those funds, while siphoning, or allowing others to siphon, funds from Mt. Gox customers’ accounts.

The plaintiffs also allege that Karpeles concealed that Mizuho Bank was no longer providing international withdrawal services, that thousands of bitcoins had been lost or stolen, and that he was shutting down the exchange and filing for bankruptcy.

The case is captioned Greene v. MtGox Inc. et al (1:14-cv-01437).

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