36 ms·

Non-official MtGox investigation update and preliminary release

105 points by sdouglas 12y ago

zzleeper 12y ago
So was it Karpeles or one of his employees?
- pan69 12y ago
  I think that's what what the term "inside job" suggests.
  - DanBC 12y ago
    Yes, but which of "karpeles" or "employee" was it?
    - deleted 12y ago
      [deleted]
    - deleted 12y ago
      [deleted]
    - gamegoblin 12y ago
      I think pan69 parsed the sentence as Was the insider in the set {Karpeles, Employee} Which is true by definition. Instead of Which element of the set {Karpeles, Employee} satisfies the condition (==insider) Which is what zzleeper was intending. This is why we should implement "xor" in natural language :D Now for the wars on if it's pronounced "zor" or "ex-or".
      - baddox 12y ago
        XOR wouldn't help much in this case. The answer to "Was the culprit A XOR B?" would still be interpreted such that the answer is a Yes or No.
        gamegoblin 12y ago
        True. It's more like "For condition C, I assert that a single element of set S satisfies C. Which element is it?" This could be useful for situations like: Question: "Was it night or day?" Logician's Answer: "Yes"
        deleted 12y ago
        [deleted]
        dandelany 12y ago
        Tell me again why we need a new linguistic construction when we have the word "which"? "So which was it, Karpeles or one of his employees?" "Which was it, night or day?"
- jonknee 12y ago
  It seems like he would have been the only one in the position to do it (the employees were kept in the dark about a lot of things).
  - dagw 12y ago
    Most employees at most companies have pretty good grasp of things they're officially "kept in the dark" about.
- krazydad 12y ago
  Looking at the graph near the end of the article, I'd be curious to know who (Karpeles or other?) took a family vacation from January 3rd to 14th...
  - ekianjo 12y ago
    That should be relatively easy for the investigators to find that out.
akerl_ 12y ago
I heard that Karpeles wasn't even running the site when things went down. He'd sold the site to Ross Ulbricht, and then Ulbricht tricked him into taking over Mt. Gox again right before everything hit the fan.
- majke 12y ago
  Citation needed.
  - eli 12y ago
    I'm pretty sure it's a joke.
    - hellbanner 12y ago
      Pretty sure that was too.
      - reddytowns 12y ago
        Ah... danielson, you must learn... do not insult one with more than 500 karma.
        recursive 12y ago
        Relax, it was a joke.
        hellbanner 12y ago
        I thought this was a democracy!
    - comrade1 12y ago
      We're not allowed to joke on HN. It's serious business here.
- TazeTSchnitzel 12y ago
  Ah, the "Reverse Karpelès Defense".
Animats 12y ago
Most of that was known. This "investigation" doesn't have access to Mt. Gox's internal logs. The actual police investigation has been unimpressive. The Tokyo Metropolitan Police are quite new at computer crime investigation. Their computer crime unit was established in May 2013, about two months before Mt. Gox started tanking.[1] Still, it's amazing that this case hasn't been cracked yet. It has to be an inside job, and the number of insiders is small. [1] http://antifraudintl.org/threads/tokyo-police-sets-up-cyber-crime-squad.77064/ http://antifraudintl.org/threads/tokyo-police-sets-up-cyber-...
mikekchar 12y ago
I only skimmed the article. It is very interesting and I want to go back to it later, but the one obvious explanation (to me) is that Willy was money laundering. It was buying up bitcoins using USD in accounts that didn't seem to exist. I'm assuming that the bitcoins existed and the trades actually happened -- it would be straight forward to tell from the block chain. The simplest explanation is that someone had a lot of USD that they wanted to launder and they were buying up Bitcoin. This money was put in non-public accounts. At some point they wanted to cash in. This caused BTC to crash. One could speculate that a naive person might offer a BTC money laundering service without understanding basic economics. The bot is buying up BTC, causing the price to skyrocket. The naive operator is thinking, "Awesome, I'll pocket a cut of this!". Then the very nasty people who were offering the USD to launder suddenly said, "OK, please return it all right now". The naive operator is thinking, "No problem, the price is so high" but then crashes the currency. In fact, once could speculate that said operator ended up with a shortfall and had to make a choice between stealing BTC from other accounts or living with 3 less legs than he was born with. I'm not saying that's necessarily how it happened, but it doesn't seem that implausible to me...
- CheckHook 12y ago
  3 less legs than he was born with?
- kaoD 12y ago
  > I only skimmed the article. Bad idea. You should read the whole article and the linked ones too. There's a lot of information there and it's really important to understand what's going on (as well as understanding how MtGox operated). > I'm assuming that the bitcoins existed and the trades actually happened -- it would be straight forward to tell from the block chain. That's a big assumption. You can't tell from the blockchain since trades were done within MtGox's database, while the blockchain was only used for BTC withdrawals. In fact, AFAIK we can't even tell if the data is real, since this is a leaked log dump and could be altered to frame someone.
Michael_Murray 12y ago
I have no inside information, but the pattern suggests to me a plausible explanation. And I'm typing on my phone, so I might not explain fully. Suppose I were wanting to overinflated the value of my business to show to investors or for another reason - I could create an account that had within it a large additional amount of fiat (by entering that value in the DB). Then, I have an idea... Using that fake deposit, I can start buying BTC. And, as long as the price of BTC is going up, I'm actually printing money and making real fiat out of the initial fake deposit. This works as long as the price continues to increase and people continue to trade - if either of those factors trends down, the fake fiat will be noticed. Unwinding this becomes tricky - if you sell too fast, you cause the price decrease. And if anybody gets wind of it, they'll abandon ship. In some ways, this has an analogue in what happened at Lehman and AIG. The CDO market worked as long as the default assumptions were right and the value of the underlying assets continued to appreciate - as soon as they didn't, the margin requirements wiped out all of their reserve capital. It also reminds me a bit of QE - the "printed" fiat was inserted in to the market and used to purchase assets in a way that supported the market. When he easing stops, if the value of the assets can't be supported by continuing market pressure, the market for those assets crashes.
- dmichulke 12y ago
  If your story is valid then - in some sense - Willy was less risky than Lehman was because the reserve ratio (assuming 10 mn$ of "printed money") was only a fraction of the existing money (I suppose less than 10%), so they operated with a reserve of >=90% Lehman on the other hand had a leverage of approx. 30 = a reserve of 3.3% Seems like the existence of a regulator for Lehman / AIG had some impact, just not quite the intended one.
- steve_taylor 12y ago
  > Unwinding this becomes tricky - if you sell too fast, you cause the price decrease. And if anybody gets wind of it, they'll abandon ship. My thoughts exactly. There are far less risky ways for an exchange to rip off its customers with out their knowledge, such as front running. That is, the insider can use lag to effectively trade with advance knowledge of the market. (Remember those long bouts of massive lag?) This doesn't require market manipulation and every single pair of trades is profitable.
zamalek 12y ago
I don't understand why a bot is so suspicious. It could have simply been algorithmic trading.[1] [1]: http://en.wikipedia.org/wiki/Algorithmic_trading http://en.wikipedia.org/wiki/Algorithmic_trading
- Cthulhu_ 12y ago
  It's suspicious because the money didn't seem to come from anywhere, the BTC didn't seem to go anywhere, and most importantly, it was doing trades while MtGox was offline for everyone else - which implies it was running internally at MtGox, which hints at it being used to artificially drive up the price of BTC.
  - zamalek 12y ago
    Thanks, that explains it clearly.

105 points by sdouglas 12y ago

zzleeper 12y ago

So was it Karpeles or one of his employees?

pan69 12y ago
I think that's what what the term "inside job" suggests.
- DanBC 12y ago
  Yes, but which of "karpeles" or "employee" was it?
  - deleted 12y ago
    [deleted]
  - deleted 12y ago
    [deleted]
  - gamegoblin 12y ago
    I think pan69 parsed the sentence as Was the insider in the set {Karpeles, Employee} Which is true by definition. Instead of Which element of the set {Karpeles, Employee} satisfies the condition (==insider) Which is what zzleeper was intending. This is why we should implement "xor" in natural language :D Now for the wars on if it's pronounced "zor" or "ex-or".
    - baddox 12y ago
      XOR wouldn't help much in this case. The answer to "Was the culprit A XOR B?" would still be interpreted such that the answer is a Yes or No.
      - gamegoblin 12y ago
        True. It's more like "For condition C, I assert that a single element of set S satisfies C. Which element is it?" This could be useful for situations like: Question: "Was it night or day?" Logician's Answer: "Yes"
        deleted 12y ago
        [deleted]
        dandelany 12y ago
        Tell me again why we need a new linguistic construction when we have the word "which"? "So which was it, Karpeles or one of his employees?" "Which was it, night or day?"
jonknee 12y ago
It seems like he would have been the only one in the position to do it (the employees were kept in the dark about a lot of things).
- dagw 12y ago
  Most employees at most companies have pretty good grasp of things they're officially "kept in the dark" about.
krazydad 12y ago
Looking at the graph near the end of the article, I'd be curious to know who (Karpeles or other?) took a family vacation from January 3rd to 14th...
- ekianjo 12y ago
  That should be relatively easy for the investigators to find that out.

akerl_ 12y ago

I heard that Karpeles wasn't even running the site when things went down. He'd sold the site to Ross Ulbricht, and then Ulbricht tricked him into taking over Mt. Gox again right before everything hit the fan.

majke 12y ago
Citation needed.
- eli 12y ago
  I'm pretty sure it's a joke.
  - hellbanner 12y ago
    Pretty sure that was too.
    - reddytowns 12y ago
      Ah... danielson, you must learn... do not insult one with more than 500 karma.
      - recursive 12y ago
        Relax, it was a joke.
      - hellbanner 12y ago
        I thought this was a democracy!
  - comrade1 12y ago
    We're not allowed to joke on HN. It's serious business here.
TazeTSchnitzel 12y ago
Ah, the "Reverse Karpelès Defense".

Animats 12y ago

Most of that was known. This "investigation" doesn't have access to Mt. Gox's internal logs. The actual police investigation has been unimpressive. The Tokyo Metropolitan Police are quite new at computer crime investigation. Their computer crime unit was established in May 2013, about two months before Mt. Gox started tanking.[1] Still, it's amazing that this case hasn't been cracked yet. It has to be an inside job, and the number of insiders is small. [1] http://antifraudintl.org/threads/tokyo-police-sets-up-cyber-crime-squad.77064/ http://antifraudintl.org/threads/tokyo-police-sets-up-cyber-...

mikekchar 12y ago

I only skimmed the article. It is very interesting and I want to go back to it later, but the one obvious explanation (to me) is that Willy was money laundering. It was buying up bitcoins using USD in accounts that didn't seem to exist. I'm assuming that the bitcoins existed and the trades actually happened -- it would be straight forward to tell from the block chain. The simplest explanation is that someone had a lot of USD that they wanted to launder and they were buying up Bitcoin. This money was put in non-public accounts. At some point they wanted to cash in. This caused BTC to crash. One could speculate that a naive person might offer a BTC money laundering service without understanding basic economics. The bot is buying up BTC, causing the price to skyrocket. The naive operator is thinking, "Awesome, I'll pocket a cut of this!". Then the very nasty people who were offering the USD to launder suddenly said, "OK, please return it all right now". The naive operator is thinking, "No problem, the price is so high" but then crashes the currency. In fact, once could speculate that said operator ended up with a shortfall and had to make a choice between stealing BTC from other accounts or living with 3 less legs than he was born with. I'm not saying that's necessarily how it happened, but it doesn't seem that implausible to me...

CheckHook 12y ago
3 less legs than he was born with?
kaoD 12y ago
> I only skimmed the article. Bad idea. You should read the whole article and the linked ones too. There's a lot of information there and it's really important to understand what's going on (as well as understanding how MtGox operated). > I'm assuming that the bitcoins existed and the trades actually happened -- it would be straight forward to tell from the block chain. That's a big assumption. You can't tell from the blockchain since trades were done within MtGox's database, while the blockchain was only used for BTC withdrawals. In fact, AFAIK we can't even tell if the data is real, since this is a leaked log dump and could be altered to frame someone.

Michael_Murray 12y ago

I have no inside information, but the pattern suggests to me a plausible explanation. And I'm typing on my phone, so I might not explain fully. Suppose I were wanting to overinflated the value of my business to show to investors or for another reason - I could create an account that had within it a large additional amount of fiat (by entering that value in the DB). Then, I have an idea... Using that fake deposit, I can start buying BTC. And, as long as the price of BTC is going up, I'm actually printing money and making real fiat out of the initial fake deposit. This works as long as the price continues to increase and people continue to trade - if either of those factors trends down, the fake fiat will be noticed. Unwinding this becomes tricky - if you sell too fast, you cause the price decrease. And if anybody gets wind of it, they'll abandon ship. In some ways, this has an analogue in what happened at Lehman and AIG. The CDO market worked as long as the default assumptions were right and the value of the underlying assets continued to appreciate - as soon as they didn't, the margin requirements wiped out all of their reserve capital. It also reminds me a bit of QE - the "printed" fiat was inserted in to the market and used to purchase assets in a way that supported the market. When he easing stops, if the value of the assets can't be supported by continuing market pressure, the market for those assets crashes.

dmichulke 12y ago
If your story is valid then - in some sense - Willy was less risky than Lehman was because the reserve ratio (assuming 10 mn$ of "printed money") was only a fraction of the existing money (I suppose less than 10%), so they operated with a reserve of >=90% Lehman on the other hand had a leverage of approx. 30 = a reserve of 3.3% Seems like the existence of a regulator for Lehman / AIG had some impact, just not quite the intended one.
steve_taylor 12y ago
> Unwinding this becomes tricky - if you sell too fast, you cause the price decrease. And if anybody gets wind of it, they'll abandon ship. My thoughts exactly. There are far less risky ways for an exchange to rip off its customers with out their knowledge, such as front running. That is, the insider can use lag to effectively trade with advance knowledge of the market. (Remember those long bouts of massive lag?) This doesn't require market manipulation and every single pair of trades is profitable.

zamalek 12y ago

I don't understand why a bot is so suspicious. It could have simply been algorithmic trading.[1] [1]: http://en.wikipedia.org/wiki/Algorithmic_trading http://en.wikipedia.org/wiki/Algorithmic_trading

Cthulhu_ 12y ago
It's suspicious because the money didn't seem to come from anywhere, the BTC didn't seem to go anywhere, and most importantly, it was doing trades while MtGox was offline for everyone else - which implies it was running internally at MtGox, which hints at it being used to artificially drive up the price of BTC.
- zamalek 12y ago
  Thanks, that explains it clearly.