Protection Standards on the Horizon for Cryptocurrency Exchanges as First Class Action Filed

By: Jillian Friedman Last month saw the collapse of a foundational member of the Bitcoin community, Mt. Gox. A class action lawsuit, that will likely be one of many, has been filed in Illinois against former the bitcoin exchange industry leader, its parent companies, and Mark Karpeles, Mt. Gox’s sole director (Gregory Greene v Mt. Gox Incet al, U.S. District Court, Northern District of Illinois, No. 14-01437). The exchange has filed for bankruptcy protection in Japan and, subsequent to the institution of class action proceedings, in the United States as well. Although the bankruptcy filing temporarily suspends the class action, the suit raises important questions about the standard of care incumbent on crypto currency exchanges and similar services in safeguarding and protecting information and assets from being accessed, stolen, or otherwise harmed. Calls for regulation from the conventional financial services industry and within the Bitcoin community have been a primary outcome of the Mt. Gox debacle. This is not surprising because significant regulatory interventions, especially in the financial services sector, tend to follow crises, whether they are real or perceived (Christopher Nicholls, Financial Institutions: The Regulatory Framework, LexisNexis, 2008 at 36). However, this lawsuit may also shed light on industry practices and the technologies behind them, of which many are currently being developed, that aim to cultivate a robust self-regulating and transparent environment for Bitcoin exchanges and services that manage and or hold assets. The claim filed by Gregory Greene individually and on behalf of class members, includes several causes of action stemming from the closure of the site and loss of what is currently estimated at $475 million...