Mark Karpeles claims he is not MtGox’s alter ego

In what may seem as a rather unusual move, Mark Karpeles, the former head of ill-fated Bitcoin exchange MtGox, is now claiming that he was not the Exchange’s alter ego. The reason for such a claim is that it may allow him to be protected from being sued in Illinois under the so-called “fiduciary shield rule”.

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.” All Karpeles has to prove is that he, despite being the sole shareholder of the Exchange, was not its alter ego.

Let’s recall that 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.

Karpeles has already indicated that he would oppose the allegations against him. In August, he said the Illinois Northern District Court does not have jurisdiction over him.

On Tuesday, September 25, 2018, he filed a Memorandum in support of his motion to dismiss the case against him. It is this document that refers to the fiduciary shield doctrine.

Karpeles admits that he was, at all relevant times, acting in his capacity as President and CEO of Mt. Gox. But he insists that “the mere fact that he was the sole shareholder of an entity owning 88% of Mt. Gox is not enough to prevent the application of the fiduciary shield rule”.

The defense submits a declaration by Karpeles in which he aims to prove that he was not the alter ego of Mt. Gox. But that declaration includes only brief statements such as “MtGox observed corporate formalities and kept corporate records” and that “Mt. Gox issued shares of stock, of which Tibanne KK owned eighty-eight percent.” There are also statements that Mr. Karpeles never commingled funds, assets or identities with Mt. Gox and that Mr. Karpeles never diverted assets from Mt. Gox to himself or any other person. Mt. Gox was not undercapitalized, the Declaration by Karpeles states.

But all these are mere statements without any evidentiary support offered for them.

The case, captioned Greene v. MtGox Inc. et al (1:14-cv-01437), continues at the Illinois Northern District Court.