Judge Rejects Certification in $400M Bitcoin Fraud Class Action

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Customers of defunct Japanese bitcoin exchange Mt. Gox are facing another hurdle in their class action lawsuit against the company’s former CEO, Mark Karpeles, with an Illinois federal judge rejecting class certification on Tuesday.

U.S. District Judge Gary Feinerman said it was unreasonable to conclude that 30,000 putative class members interpreted Mt. Gox’s terms of use the same way lead Plaintiff Gregory Greene did — or even read them in the first place, Law360 reported.

It is the second time customers of the cryptocurrency exchange have tried to get certification of their class action lawsuit. Feinerman first rejected the request in 2018.

Now, Feinerman said that Greene’s theory of fraud in his $400 million claim turned on the exchange’s terms of use, drafted by Karpeles, and each user’s understanding of it – making certification inappropriate for the case.

The class action lawsuit was filed in 2014 following Mt. Gox’s, which came after it lost $400 million in bitcoin – which has been blamed on hackers. Mt. Gox declared bankruptcy the day after the claim was filed and settled the class action lawsuit against it in May 2014, Law360 reports.

Former-Mt. Gox customers then added Mizuho Bank Ltd. to their class action lawsuit, alleging that the Japanese bank knew about Mt. Gox’s shady business and continued to accept customers’ cash, but did not honor withdrawal requests. Mizuho and the customers ended  their legal dispute in 2018.

Karpeles is the only remaining defendant in the action, with customers alleging that he misrepresented the safety, security and operation of the exchange through the terms of use. He has argued that a compensation plan in Japan would better serve the proposed class members than litigation in the United States, Law360 reports.

On Tuesday, Feinerman said that in order to rely on the statements made in the user terms, as would be needed for Greene’s case, users would need to know what the terms said, and whether 30,000 users read or understood the contents of the terms “cannot yield a common answer across all or even most of the class.”

“No reasonable factfinder could simply assume that all or most of those users read or otherwise learned of the terms,” Feinerman said, adding that even if users had read the terms that didn’t mean they understood them in the same way as Greene.

“To find reliance on a classwide basis, a factfinder would need to determine, in one fell swoop, that all or most class members shared Greene’s interpretation of those four provisions and acted on it,” Feinerman said.

She said because reliance was at the heart of the class action lawsuit, certification wasn’t appropriate as it would require hearing evidence on all the class members interpretations of the terms of use.

“Holding over thirty thousand mini-trials to determine how each class member understood and whether each class member relied upon a contract they accepted nearly a decade ago would present insurmountable difficulties,” the judge said.

Have you ever lost money through a bitcoin or cryptocurrency exchange? Let us know in the comments section!

The customers are represented by J. Aaron Lawson, Benjamin Thomassen, Jay Edelson, Ari Scharg, Christopher Dore, Daniel Schneider and Eve-Lynn Rapp of Edelson PC, Robert Clifford and Shannon McNulty of Clifford Law Offices PC, Steven Woodrow of Woodrow Peluso LLC and Scott Kitei of Honigman LLP.

Karpeles is represented by Bevin Brennan and Matthew Schmidt of Pedersen & Houpt PC.The Mt. Gox Bitcoin Fraud Class Action Lawsuit is Greene et al. v. Karpeles et al., Case No. 1:14-cv-01437, in the U.S. District Court for the Northern District of Illinois.

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