Bitcoin exchange Mt. Gox counter-sues over failed North American expansion

Mt. Gox, the largest exchange for trading the crypto-currency known as Bitcoin, is demanding its one-time partner CoinLab return cash and Bitcoins, and also surrender $5 million worth of customer funds that CoinLab is allegedly sitting on.

The accusations by Tokyo-based Mt. Gox come in response to a $75 million lawsuit that CoinLab filed in May over the breakdown of a strategic partnership in which the two firms planned to create Bitcoin brokerages in the United States and Canada. The partnership was supposed to make it easier for U.S. customers to convert Bitcoins into U.S. dollars.

CoinLab, however, sued after Mt. Gox allegedly reneged on its promise to provide passwords and account information about North American clients.

In response, Mt. Gox has shot back with claims that the contract between the companies is void on the grounds that CoinLab couldn’t deliver on a fundamental promise — a regulatory greenlight to run Bitcoin exchanges in the United States.

Instead, said Mt. Gox, CoinLab couldn’t secure a single license; in the meantime, federal and state regulators have been expanding investigations into whether Bitcoin trading operations are unauthorized money transmitter businesses.

As a result, Mt. Gox is now claiming that CoinLab’s failure to get government approval is what led it to call off the partnership — but not before Coinlab succeeded in taking control of many customer accounts.

According to the Mt. Gox claims, set out in a Seattle court filing last week, CoinLab took control of about $12.8 million worth of customer accounts — and has returned control of only some of these accounts to Mt. Gox; CoinLab is allegedly sitting on the rest of the customer funds, worth about $5.3 million.

These allegations, if true, are likely responsible in part for the liquidity woes at Mt. Gox, where customers have been complaining that it has taken weeks to get their cash. The situation has been further exacerbated by the federal government’s decision earlier this year to confiscate at least $2.9 million from Mt. Gox bank accounts in the U.S.

Mt. Gox, in its legal response, not only refutes CoinLab’s claims, but adds counterclaims of its own. Mt. Gox is asking for a laundry list of things, including: a declaration that the partnership contract is void; the return of $62,258.70, C$40 dollars and 1,428.8 Bitcoins (worth roughly $165,000 today); and a constructive trust to return the approximately $5 million in customer accounts to the control of Mt. Gox.

The latest turns in the lawsuit will hardly burnish the Bitcoin community’s effort to achieve respectability but, in an unrelated and more positive note, Bitcoin service provider Bitpay announced on Monday that more than 10,000 merchants are now using its service to accept the virtual currency.

Here’s the Mt. Gox filing, courtesy of Wired’s Robert McMillan:

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Correction: an earlier version of this story misspelled CoinLab as Coinbase in the 7th paragraph.