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Business bankruptcy filed over loss of $500M in virtual currency

Protecting consumers’ personal data has always been a major concern for businesses, but the advent of cyber information, cloud data storage and other related technology has heightened this concern. Online security breaches from unscrupulous hackers is a constant worry for a lot of business owners, and it is one that recently became very real for MtGox, a major exchange site for the virtual currency known as the Bitcoin.

The company recently suffered a data breach that resulted in approximately 850,000 Bitcoins being stolen or lost. The value of these Bitcoins has been estimated at $473 million. Approximately 750,000 of these belonged to customers. It was a serious blow that caused the worldwide company to not only cease operations, but to seek bankruptcy protection as well.

Chief Executive Officer Mark Karpeles suffered individual harm as a result of this situation as well, losing approximately 100,000 of the Bitcoins that he personally owned.

This security breach and subsequent consequences prompted Karpeles to make a public apology to the company’s customers and investors. Karpeles called the entire situation a “tragic violation” of the site users’ trust. Investors, or creditors under bankruptcy terms, reported that the loss may be so severe that they don’t expect to recover the funds that they loaned to the business.

In this case, the business operates out of Japan, and so it filed for protection under that jurisdiction’s laws. In the United States, companies may file for business bankruptcy under either Chapter 7 or Chapter 11 protection.

The two processes share the same goal of helping the business find a solution for a debt problem, even if the source was a security hack such as this one. The two processes most simply differ in that Chapter 7 involves liquidation while Chapter 11 involves more restructuring of debt into a manageable plan.

Businesses in New Hampshire that have found themselves in a financial situation for any reason, should consult with a bankruptcy attorney to discuss the legal options available to them.

Source: New Hampshire Public Radio, “MtGox Files For Bankruptcy; Nearly $500M Of Bitcoins Lost,” Mark Memmott, Feb. 28, 2014

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