Illinois Judge questions claims by ex-MtGox customer about trapped funds

Maria Nikolova

The evidence suggests that Anthony Motto’s funds deposited with the ill-fated bitcoin exchange were not actually trapped, Judge Gary Feinerman says.

Judge Gary Feinerman of the Illinois Northern District Court has found that claims made by a former customer of ill-fated Bitcoin exchange MtGox were not typical of a class the plaintiff was trying to certify.

On Thursday, June 7, 2018, Judge Feinerman issued a Memorandum Opinion and Order, denying Anthony Motto’s request to certify a subclass of depositors who allegedly had their funds trapped after the demise of MtGox – that is, they were free to deposit but not to withdraw their money.

The putative class action, captioned Greene v. MtGox Inc. et al (1:14-cv-01437), was brought by Gregory Greene and Anthony Motto who seek to hold Mizuho Bank, Ltd. and Mark Karpeles liable for financial losses arising from the demise of the Mt. Gox Bitcoin exchange. An operative complaint brings three counts against Mizuho, all on behalf of Motto and the putative Deposit Subclass: tortious interference with contract; unjust enrichment; and fraudulent concealment.

The Deposit Subclass, which Motto has sought to certify, is defined as those members of the Mt. Gox class—itself defined as “all persons in the United States who had bitcoins or money stored with Mt. Gox on February 24, 2014”—“who deposited money into their Mt. Gox account through Mizuho Bank after the date when Mizuho Bank stopped processing withdrawals.”

The Judge has found that Motto fails on two separate grounds to show that he satisfies the typicality and adequacy requirements to certify class.

Let’s briefly recall what the case is about. Beginning in September 2012, Mizuho received and processed deposits and withdrawals of fiat currency for United States-based Mt. Gox customers. Mizuho did not play an exclusive role in this regard, as Mt. Gox relied at different points in time on other financial institutions and payment processors, including Japan Post Bank, Dwolla, and OK Pay, to facilitate fiat currency deposits and withdrawals. By late June 2013, Mizuho had stopped processing all international outbound wire transfer requests for Mt. Gox customers. Neither Mizuho nor Mt. Gox announced publicly that Mizuho had stopped processing those outbound wire transfer requests. Mizuho, however, continued to accept and receive international inbound wire transfers from Mt. Gox customers until Mt. Gox shut down in February 2014.

Anthony Motto opened an account with Mt. Gox in mid-January 2014. Approximately a month later, and days before Mt. Gox stopped operations, Motto wired $1,000 in fiat currency from a JPMorgan Chase Bank account he controlled – owned by his company, Highline Technologies – to Mt. Gox’s account at Mizuho.

Importantly, at the time he wired the money, Motto was aware of difficulties, including delays, in Mt. Gox’s processing of withdrawal requests. Motto testified, however, that he was not “overly concerned” about those problems. As Motto explained, had he decided to make a withdrawal, he “would have withdrawn bitcoin” rather than trying to “turn” his investment “back into U.S. dollars”; a withdrawal of bitcoin, as opposed to a withdrawal of fiat currency, would not have required services of a bank like Mizuho. When asked whether his decision to invest in bitcoin on Mt. Gox would have been impacted by learning that Mizuho was no longer processing fiat currency withdrawal requests, Motto testified that he “would have worked another way to get funds into the Mt. Gox exchange.”

According to the Judge, Motto’s adequacy as a class representative founders on his being subject to particular defenses not applicable to the Deposit Subclass as a whole. Motto’s deposition testimony that he would have found a way to invest in bitcoin on the Mt. Gox exchange even had he known that Mizuho stopped processing outbound wire transfers – and that had he sought to withdraw his investment from the exchange, he would have done so in bitcoin, not in fiat currency – would provide Mizuho with serious grounds to attack and defeat his claims.

From the outset, the gist of the claims against Mizuho has been that its decision to stop processing outbound wire transfers as of late June 2013 created a “trap” for investors based in the United States: “money could go into Mt. Gox’s account at Mizuho, but it could never leave.” According to the complaint, had investors known how broken Mizuho’s banking relationship with Mt. Gox was – and that they would be unable to withdraw their money – no United States user would deposit money into Mt. Gox and Mizuho would be deprived of the transaction fees associated with such deposits.

Motto’s testimony thus would allow Mizuho to present a defense applicable only to him: that he was not injured by Mizuho’s decision to stop processing outbound wire transfers of fiat currency from Mt. Gox’s account because he did not rely on the presence of that functionality in deciding to purchase bitcoin on the Mt. Gox exchange.

Because that defense is compelling and would make Motto’s claims significantly weaker than those of some (perhaps many) other class members, Motto is not an adequate class representative, the Judge said. The evidence would give Mizuho a strong basis to assert that, unlike the funds of those Deposit Subclass members who invested in Mt. Gox through Mizuho before it instituted the notification policy, Motto’s investment was not “trapped” at all.

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