A user just filed the first lawsuit against Mt. Gox

Bitcoin exchange Mt. Gox files for bankruptcy
Bitcoin exchange Mt. Gox files for bankruptcy

A bitcoin user is suing Mt. Gox over its million-dollar losses after cyberattacks bankrupted what once was the world's largest bitcoin exchange, according to Reuters.

Plaintiff Gregory Greene filed a complaint on behalf of bitcoin users in a U.S. District Court in Chicago on Thursday, accusing Mt. Gox and its CEO Mark Karpeles of negligence and fraud for not protecting the exchange from theft.

Greene, who claimed his own bitcoin holdings were about $25,000, said "Mt. Gox intentionally and knowingly failed to provide its users with the level of security protection for which they paid", Reuters reported.

The suit could be the first of many filed against Mt. Gox, which has lost an estimated $480 million dollars worth of bitcoins, a virtual currency, due to what it called a weakness in its system.

A lawyer for the embattled Japan-based company announced at a news conference on Friday that the exchange was filing for Chapter 11-style protection and stated that Mt.Gox had outstanding debts of about 6.5 billion Japanese yen ($63.6 million), the Dow Jones news agency reported.

Its customers have been unable to withdraw their bitcoins and convert them into U.S. dollars since the beginning of February. The exchange blamed the problem on a critical loophole — known as "transaction malleability" — in the cryptocurrency that it said leaves all exchanges open to hacking.

Mark Karpeles, the CEO of Mt.Gox, reiterated this belief on Friday at the news conference, blaming weaknesses in the system for the loss of its bitcoins.

The company's lawyers added that Mt.Gox may have lost nearly all of its virtual currency, leading to a black hole of 2.8 billion Japanese yen, local media reported.

(Read More: Mt.Gox CEO: 'I'm still in Japan')

The company said there were 127,000 creditors in the bankruptcy and only 0.8 percent were Japanese. Representatives added that it opted for a transparent procedure due to public outcry and will aid authorities in finding out what happened. Its liquid liabilities totaled 6.501 billion Japanese yen with its total assets being 3.842 billion Japanese yen, according to Reuters. Dow Jones added that Mt.Gox believed 750,000 of customers' coins may have been lost and 100,000 of its own, meaning a loss of around $500 million at current market prices.

(Read More: Bitcoin's Mt.Gox disappears, insolvency feared)

Mt.Gox - which once claimed it handled around 80 percent of all global dollar trades for bitcoin - is an online marketplace where people can buy or sell bitcoins using different currencies.

This photo illustration shows a man looking at the bitcoin exchange website of Mt. Gox in Tokyo last February.
Yoshikazu Txuno | AFP | Getty Images

Its website was abruptly taken offline on Tuesday with Karpeles saying the business was at "a turning point."This comes after the exchange deleted all of its tweets from its Twitter account on Monday and Karpeles resigning from the board of the Bitcoin Foundation on Sunday. The company also announced last week that it had moved offices due to "security problems."

On Wednesday, Reuters reported that the office of Manhattan U.S. Attorney Preet Bharara was seeking information from businesses dealing in bitcoin to discover how they were dealing with the cyberattacks. Subpoenas have been sent by Bharara to Mt.Gox, as well as other firms that did business with the Tokyo-based company, a source told Reuters.

Meanwhile, Japanese authorities are looking into the abrupt closure of the exchange, a government spokesman said on Wednesday in Tokyo's first official reaction to the turmoil at the company.

(Read More: Bitcoin investor fury at Mt Gox delays)

The issues at Mt.Gox have caused anger in the bitcoin community with some customers taking to social media to express their dissatisfaction. An unverified document circulating online earlier this week claimed that Mt.Gox had lost 744,408 bitcoins (worth around $350 million) due to theft related to the trading fault.

Bitcoin's biggest problem is regulation: Pro
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On Friday morning the price of the virtual currency stood stable at $550, according to CoinDesk which tracks the price at various major exchanges. Mt.Gox are expected to update customers via its website which has published two updates since being taken offline.

(Track the price of bitcoin here)

Angus McFadyen, an associate at international law firm Pinsent Masons told CNBC via telephone that he expected the company will now disappear. Bankruptcy protection aims to give a company time to reorganize its affairs while treating it as an ongoing concern. McFadyen explained that if formal bankruptcy is filed, then a long list of creditors will be drawn up, with each lodging their claims before being placed in a queue.

Tax authorities will be at the top of the list, he said, with unsecured creditors - which he believes to be the bitcoin investors - being at the bottom. If the money available to the company, if any, stretches to the unsecured creditors then they may be reimbursed. He didn't expect this to happen in the case of Mt.Gox however.

In other jurisdictions, like the U.K., the directors at a company could be made to help with reimbursement if they are complicit, but McFadyen didn't expect this to happen with this particular incident, with the loss blamed instead on computer thieves.

(Read More: Mt.Gox customers could be out of luck, experts warn)

"As it stands bitcoin doesn't benefit from any laws," McFadyen told CNBC, explaining that because it was a decentralized currency with no regulation it is not given the same protection as fiat currency. "A currency needs to be secure and customers need to have confidence with it," he added.

Another global law firm told CNBC that the chances of customers getting their investments back were very slim.

"As I understand it these bitcoins have been stolen - due to anonymity of bitcoin it is difficult to see how customers could get them back," Richard Smith, a partner at Mayer Brown said.

"They may theoretically have some sort of a claim against Mt.Gox but it doesn't look like that would count for much if Mt.Gox is insolvent with outstanding debts of about 6.5 billion (Japanese) yen."

By's Matt Clinch; Follow him on Twitter @mattclinch81