Mizuho Bank, one of Japan's largest lenders, has became ensnared in North American legal fallout from Mt. Gox, once the world's biggest bitcoin exchange, which collapsed last month after losing nearly half a billion dollars worth of customers' digital currency.
Lawsuits in the United States and Canada represent a new legal front - and a deep-pocketed defendant - in the battle over Mt. Gox, which claims hackers stole huge amounts of its own and its customers' assets.
Mizuho, the core unit of Mizuho Financial Group Inc (8411.T), Japan's second-biggest "megabank" by assets, was added as a defendant on Friday to an existing U.S. lawsuit against Mt. Gox for allegedly aiding in a fraud by providing banking services to the exchange.
Also on Friday, Mizuho was named in a class-action lawsuit in Canada against Mt. Gox, alleging a lengthy security breach at Mt. Gox resulted in "the pilfering of millions of dollars' worth of its users' bitcoins.
A Mizuho spokeswoman in Tokyo declined comment on Sunday on the lawsuits, filed in Chicago federal court and the Ontario Superior Court of Justice.
Tokyo-based Mt. Gox closed its virtual doors on February 25 and three days later filed for Chapter 11-style bankruptcy protection with a Japanese court.
CUSTOMERS SUSPECT FRAUD
The company said it had likely lost all 750,000 customer bitcoins it was holding, as well as 100,000 of its own and 2.8 billion yen in cash. That represents $567 million of vanished assets at current market prices, as well as about 7 percent of the bitcoins in circulation.
Mt. Gox blames systematic attacks on what it acknowledges was lax computer security. Customers - more than 99 percent of whom are non-Japanese - suspect a massive fraud.
On Monday, Mt. Gox filed for a U.S. Chapter 15 bankruptcy, which shields the company from lawsuits in U.S. courts as the Tokyo case proceeds.
Mizuho held non-bitcoin currency on behalf of Tokyo-based Mt. Gox and its customers, according to the amended U.S. complaint by Gregory Greene, an Illinois resident who has said he lost $25,000 when Mt. Gox shut down.
The U.S. suit accuses Mizuho of knowing of Mt. Gox's fraud, of not segregating funds that belong to Mt. Gox from those of its customers and of continuing to provide banking services that inflated losses for bitcoin customers.
"Mizuho profited from the fraud," said the complaint.
The Canadian plaintiffs allege that "all non-bitcoin currency received by the Mt. Gox defendants from its users was held in an account or accounts" at Mizuho.
MIZUHO VS MT GOX
In fact, the bank by January was trying to close the exchange's account.
An unnamed Mizuho manager at Mizuho bank, in a recording leaked on the internet, asks Mark Karpeles, Mt. Gox's 28-year-old French CEO, to close his firm's account with the bank, citing compliance issues and moves by other banks to cut ties with the exchange.
The recording was confirmed as authentic by a person familiar with the situation.
If Mizuho had to close the account forcibly, the manager warned, it could damage Mt. Gox's business.
"There would be confusion when your regular users try to deposit money. We don't think that's right," he says. "If there's confusion, we'd come under criticism and you'd be in trouble as well."
Karpeles told the Mizuho official Mt. Gox was unwilling to cooperate.
The Canadian suit was filed on behalf of "all persons in Canada who paid a fee to Mt. Gox to buy, sell or otherwise trade bitcoins" and all those who had bitcoins or currency stored with Mt. Gox on February 7.
While the U.S. bankruptcy stopped American courts from issuing orders against the Tokyo company, it does not protect Karpeles, the parent company Tibanne or Mt. Gox's U.S. affiliate. On Tuesday, the U.S. assets of those three were temporarily frozen by the federal judge overseeing Greene's lawsuit.
The amended U.S. complaint said that despite the asset freeze, "evidence suggests" defendants continue to receive bitcoins in the United States.
The amended complaint also added as defendants two executives of Mt. Gox, Jed McCaleb and Gonzague Gay-Bouchery.
A Baker & McKenzie attorney who represented Mt. Gox in its U.S. Bankruptcy, John Murphy, did not immediately respond to a request for comment.
The U.S. case is Gregory Greene v Mt. Gox Inc et al, U.S. District Court, Northern District of Illinois, No. 14-01437. The Canadian case is David Joyce, et al and MtGox Inc, et al, Ontario Superior Court of Justice, CV-15-500253-00CP.
(Additional reporting by Taro Fuse and Taiga Uranaka in Tokyo; Editing by William Mallard and Clarence Fernandez)