World's biggest bitcoin exchange -- Mt. Gox -- abruptly shuts down in blow to digital currency

By Ruairidh Villar, Sophie Knight and Brett Wolf

TOKYO/ST LOUIS (Reuters) - Mt. Gox, once the world's biggest bitcoin exchange, abruptly stopped trading on Tuesday and its chief executive said the business was at "a turning point" but gave no details.

Several other digital currency exchanges, including Bitstamp and BTC-E, issued statements attempting to reassure investors of both bitcoin's viability and their own security protocols.

The website of Mt. Gox suddenly went dark on Tuesday with no explanation, and the only activity at the company's Tokyo office was outside, where a handful of protesters said they had lost money investing in the virtual currency.

Hours later, Mt. Gox CEO Mark Karpeles told Reuters in an email: "We should have an official announcement ready soon-ish. We are currently at a turning point for the business. I can't tell much more for now as this also involves other parties."

He did not give any other details.

The Tokyo-based Mt. Gox had halted withdrawals earlier this month after detecting "unusual activity," and on Sunday Karpeles resigned from the board of the Bitcoin Foundation, the digital currency's trade group.

Mt. Gox, which began as a venue for trading cards, had surged to the top of the bitcoin world, but critics, from rival exchanges to burned investors, said the digital marketplace operator had long been lax over its security.

Tokyo investors in bitcoin, who have endured a volatile ride in the value of the unregulated cyber-tender, said the problem was with Mt. Gox, not with the revolutionary currency itself. Bitcoin has had a wild ride of late, sharply losing value in recent weeks as cyber attacks have intensified. Since Sunday, the price of Bitcoin is down to $530 from $610 on Bitstamp.

A document circulating on the Internet purporting to be a crisis plan for Mt. Gox, said more than 744,000 bitcoins were "missing due to malleability-related theft", and noted Mt. Gox had $174 million in liabilities against $32.75 million in assets. It was not possible to verify the document or the exchange's financial situation.

If accurate, that would mean approximately 6 percent of the 12.4 million bitcoins minted would be considered missing.

A statement on Bitcoin's website said, "In the event of recent news reports and the potential repercussions on MtGox's operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users. We will be closely monitoring the situation and will react accordingly."

Mt. Gox was a founding member and one of the three elected industry representatives on the board of the Bitcoin Foundation. A bitcoin exchange since 2010, Mt. Gox is a relatively old player, having grown quickly when there were few alternatives.

"Mt. Gox is one of several exchanges, and their exit, while unfortunate, opens a door of opportunity," said The Bitcoin Foundation in a statement. "This incident demonstrates the need for responsible individuals and members of the bitcoin community to lead in providing reliable services."

Steve Hudak, spokesman for Treasury's anti-money laundering unit, the Financial Crimes Enforcement Network (FinCEN), said it is "aware of the reports regarding Mt. Gox" but had no additional comment. To date it is the only U.S. regulatory agency to have any oversight of Mt. Gox.

In a statement, Benjamin M. Lawsky, Superintendent of Financial Services for the State of New York, said that while all of the facts surrounding Mt. Gox are "not yet clear, these developments underscore that smart, tailored regulation could play an important role in protecting consumers and the security of the money that they entrust to virtual currency firms."

Lawsky said last month that he planned to issue rules for businesses handling virtual currencies.

"VERY ANGRY"

Bitcoin has been a roller-coaster of late, rising and falling dramatically, sometimes on an intraday basis, and its price varies greatly depending on the exchange.

The Mt. Gox bitcoin, which traded at $828.99 before February 7, when the exchange halted withdrawals, since plunged 83.7 percent to $135. Coins at Bitstamp, another large exchange, at one point hit $400 on Tuesday, down 40 percent since February 7. It had recovered lately to $530, while on Bulgaria-based rival btc-e, it traded at $521.

"I'm very angry," said Kolin Burges, a self-styled "crypto-currency trader" and former software engineer who came from London for answers after Mt. Gox failed to tell him what had happened to his bitcoins, which at one point were worth

$300,000.

"It looks like that's disappeared," said Burges, one of six protesters outside the Mt. Gox office, which was as deserted as a nearby cafe that had formerly accepted bitcoins as payment. In a statement last week, Mt. Gox said it had moved office because of security issues.

Some protesters carried signs saying, "Mt. Gox, where's our money?" and "Mt. Gox, are you solvent?"

"They prolonged this and kept telling people everything was OK," Burges said. "A lot of people did believe that, and it's very annoying what they've done to me and up to a million others."

Six leading bitcoin exchanges - which allow users to trade bitcoins for U.S. dollars and other currencies - distanced themselves from Mt. Gox.

"This tragic violation of the trust of users of Mt. Gox was the result of one company's actions and does not reflect the resilience or value of bitcoin and the digital currency industry," the companies - Coinbase, Kraken, Bitstamp, BTC China, Blockchain and Circle - said in the statement. "As with any new industry, there are certain bad actors that need to be weeded out, and that is what we're seeing today."

Bitstamp separately said its customers are safe and "nothing is amiss," adding that it has "conducted a thorough audit of our bitcoin accounts."

"TEETHING PROBLEMS"

Bitcoin users said they see the problem with Mt. Gox as isolated and not with the virtual currency, even though bitcoin's value and reputation has taken a beating globally.

Virtual currency exchanges "stand to benefit from the Mt. Gox fallout," but there will be "increased expectations on the transparency and disclosures they need to make to customers," said Jaron Lukasiewicz, co-founder and chief executive of Coinsetter, a New York-based bitcoin exchange.

Japan's financial regulators have largely given bitcoin a shrug. A spokesman for the Financial Services Agency said bitcoin is "not a currency" but an alternative, like gold, and therefore not subject to their oversight. Japanese Finance Ministry officials also said they are not in charge of regulating bitcoin.

In the United States, Alabama's securities regulator said he will issue an alert on Tuesday, cautioning consumers and investors to stop trading on bitcoin exchanges or adding to their accounts if they are having trouble redeeming the digital currency or cashing out.

Democratic Senator Tom Carper of Delaware, who chairs the Homeland Security and Governmental Affairs Committee, said in a statement that the "disturbing news today from Japan is a reminder of the damage potentially ill equipped and unregulated financial actors can wreak on unsuspecting consumers. U.S. policymakers and regulators can and should learn from this incident to protect consumers."

Karpeles himself, while insisting on his own exchange's reliability, has made no secret that bitcoin is, as he told Reuters last April, a "high-risk investment".

"If you buy bitcoins, you should buy keeping in mind that the value could be zero the day after."

The concierge at his home - an upscale apartment in the Shibuya district - said he was not answering his intercom. His mailbox was so stuffed with mail that the flap would not close.

(Reporting by Ruairidh Villar and Sophie Knight in Tokyo, and Brett Wolf of the Compliance Complete service of Thomson Reuters Accelus in St. Louis; Additional reporting by Cheng Herng Shinn, Stanley White and Noriyuki Hirata in Tokyo, Karen Freifeld in New York, and Chris Peters in Bangalore; Writing by William Mallard and David Gaffen; Editing by Ian Geoghegan and Tiffany Wu)