Case 14-31229--sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 1 of 34 David W. Parham State Bar No. 15459500 John E. Mitchell State Bar No. 00797095 2300 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Telephone: (214) 978-3000 Facsimile: (214) 978-3099 Email: davidparham@bakernIckenzie.com Email: --and- Erin E. Broderick (pro /me vice pending) Illinois Bar No. 6295974 300 East Randolph Drive, Suite 5000 Chicago, Illinois 60602 Telephone: (312) 861-8000 Facsimile: (312) 861-2899 Email: Attorneys for the Petitioner Robert Marie Mark Karpeles, Foreign Representative 0fMtG0x Co., Ltd., a/k/ct MtG0,r KK IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS I DALLAS DIVISION In re Chapter 15 MtGox MtGox KK) Case No. 14- Debtor in a Foreign Proceeding. DECLARATION OF ROBERT MARIE MARK KARPELES I, Robert Marie Mark Karpeles ("Katpeles"), pursuant to 28 U.S.C. 1746, hereby declare under penalty of perjury under the laws of the United States of America as follows: Case 14-31229--sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 2 of 34 1. I am Chief Executive Officer and the sole Board Member of MtGox Ltd., a/k/a MtGox KK (the "mgr" or As explained below, under the civil rehabilitation proceeding which application has been accepted by the Tokyo District Court, Twentieth Civil Division (the "Tokyo Court") on February 28, 2014 under Japanese law (the Proceeding"), I have the powers to act as MtGox's foreign representative in this Chapter 15 case (the Further this appointment has been duly reported to the supervisor/examiner appointed by the Tokyo Court to supervise the Japan Proceeding. All facts set forth in this deciaration are based on: my personal knowledge; (ii) my review of relevant. documents; or my opinion based on my experience and knowledge of the Debtor's operations. 2. I submit this declaration in support of: MtGox's Verified Petition for Recognition and Chapter l5 Relief (the "Petition"); and (ii) MtGox's Application for Order Granting Provisional Relief, Scheduling Recognition Hearing, and Specifying Form and Manner of Notice (the MtG0x's Business 3. MtGox is a Japanese corporation located in Tokyo, Japan. Until on or around February 25, 2014, it operated an online bitcoin exchange through the website mtgox.com. lV[tGox has operated this exchange since the summer of 2011. There were times during this period that MtGox was reported to be the largest online bitcoin exchange in the world, but that is no longer the case. 4. Bitcoin is a form of digital currency that was first conceived of in 2008 by a person or group going by the name of Satoshi Nakamoto. The first actual bitcoin was created, 1 Any capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Petition or the Application, as applicable. 2 Case 14-31229--sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 3 of 34 or "mined" in 2009. There are several ways in which a person can obtain bitcoin, including the following: Bitcoins are "created" through a computer software algorithm which, at any point in time, resides on thousands of computers on the Internet. Persons who accept to certify bitcoin transactions over the bitcoin peer--to--peer network are remunerated by the issuance of a fixed number of bitcoins which evolves over time. The certification is done by the solving of an "algorithm" with the use of eVer--more powerful computers. These persons are called "miners" and the process of obtaining bitcoin in this fashion is called "mining." A person can also obtain bitcoins that have already been mined by buying them from another. These transactions can consist of "one--to--one" transactions between a buyer and seller. In addition, a person can bL1y or sell bitcoin through an online exchange, such as the exchange operated by MtGox on the mtgox.com website. In these exchange transactions, the buyer and seller create accounts at the exchange and then fund the account with currency funds, bitcoin or both. The user can then enter a buy or sell order online and the website will match the buy or sell order with one or more sell or buy orders. The buyer receives an increase in bitcoin in his/her account and the seller receives an increase in currency in his/her account. The bitcoin exchange receives a fee or commission for the transaction. A person can also obtain and use bitcoin through commercial or merchant transactions; that is, a person can use bitcoin in certain circumstances to pay for goods and services. 5. Users store bitcoins in a digital "wallet" using either the software provided as part of the bitcoin software or a wallet provided by various providers. lVItGox provides a wallet feature. A wallet can be materialized on a piece of paper and bitcoins need not be stored on a computer. 6. The MtGox exchange allowed persons with MtGox accounts to buy and sell bitcoin among themselves. In this regard, a person was to first open an account at MtGox and was assigned an account number. Once a user wanted to start buying or selling bitcoin on the mtgox website, he or she would need to "fund" the account with currency, bitcoin, or both. In addition, the account holder would be subject to "anti--money laundering" procedures. Once the account was "funded," the account holder would have a "currency balance" in the 3 Case 14-31229--sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 4 of 34 account, corresponding to the amount of currency he or she had a right to withdraw', and, a "bitcoin balance" in the account, corresponding to the amount of bitcoin he or she had a right to withdraw. MtG0x's Capital Structure 7. MtGox has approximately ?6.5 billion ($63.9 million) in liabilities and approximately ?3.84 billion ($37.7 million) of assets at present. MtGox has no secured debt. Approximately 12% of the equity in is held by the developer of the initial MtGox software, Jed MacCaleb, with the remaining equity held by Tibanne Co., Ltd., aka Tibanne KK, a Japanese corporation located in Japan. Business Challenges 8. The mtgox.com website has been subject to numerous attempts by persons to breach its security, create denial of service situations, or to otherwise "hack" the system, and this has been the case since MtGox started operating the website in July 20l 1. In certain circumstances such attempts have l_ed to the company shutting down the site for periods at a time. 9. On February 7, 2014, all bitcoin withdrawals were halted by MtGox due to the theft or disappearance of hundreds of thousands of bitcoins owned by MtGox customers as well as MtGox itself. The cause of the theft or disappearance is the subject of intensive investigation by me and others as of the present time I believe it was caused or related to a defect or "bug" in the bitcoin software algorithm, which was exploited by one or more persons who had "backed" the bitcoin network. On February 24, 2014, MtGox suspended all trading after internal investigations discovered a loss of 744,408 bitcoins presumably from this method of theft. These events caused among others lV[tGox to become insolvent and to file the Japan Proceeding. 4 Case 14-31229--sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 5 of 34 MtG0x 's Japan Proceeding and Civil Rehabilitation ander the JCRA 10. In order to protect the MtGox business as a going concern and retain its value while MtGox investigates the theft of the bitcoins under its control and addresses security defects in the bitcoin exchange, MtGox filed a petition (the ap_an Petition") for the commencement of the Japan Proceeding in the Tokyo Court pursuant to Article 21(1) of the CRA on February 28, 2014, reporting that the company had lost almost 750,000 of its customers' bitcoins, and around 100,000 of its own bitcoins, totaling around 7% of all bitcoins in the world, and worth around $473 million near the time of the filing. The Japan Petition is attached hereto as Exhibit A.2 The Japan Proceeding is a civil rehabilitation. The purpose of a civil rehabilitation proceeding is to formulate a rehabilitation plan as consented to by a requisite number of creditors and confirmed by the court, to appropriately coordinate the relationships of rights between creditors and the debtor, with the aim of ensuring rehabilitation of the debtor's business or economic life. In addition to the petition for commencement, lVItGox also filed applications for a temporary restraining order and for a comprehensive prohibition order which were issued by the Tokyo Court on February 28, 2014. At the same time, the Tokyo Court issued orders for the appointment of a supervisor and examiner (collectively, the "Tokyo Court Orders"). The Tokyo Court Orders are attached hereto, together with their English translation, as Exhibits B, Q, Q, and respectively. ll. The Tokyo Court appointed Mr. Nobuaki Kobayashi, a Japanese attorney, as MtGox's supervisor and examiner. Under the Tokyo Court Orders, the Debtor cannot execute any agreement with any third party without the consent of the supervisor and examiner. The Debtor however remains free to initiate or pursue any legal proceeding provided that the costs of An English translation of the Japanese Petition wiil be submitted to the Court when available. 5 Case 14-31229--sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 6 of 34 these proceedings be approved by the supervisor and examiner. On March 10, 2014, Mr. Kobayashi, pursuant to the powers conferred upon him by the Tokyo Court Orders, issued a consent allowing the Debtor to hire Baker McKenzie to file this Chapter 15 case as counsel of Debtor, aliowing the payment of Baker McKenzie's fees and further acknowledging that this consent was granted at the condition that lVItGox's sole Director and Chief Executive Officer, Mr. Karpeles, file this Chapter 15 case as the foreign representative of MtGox. A true and correct copy of the application for consent and the consent issued by Mr. Kobayashi is attached hereto, together with an English translation, as Exhibit F. 12. Under the current status of the Japan Proceeding, the supervisor/examiner does not have the powers to manage the assets of the Debtor. As a consequence, the current management of MtGox remains in place and is allowed to continue to operate its businesses as a debtor--in--possession. I understand that this is permitted under the JCRA and that MtGox has submitted the evidence legally required for the relief to be granted upon format commencement. l3. I understand that the schedule for the Japan Proceeding will be determined by the Tokyo Court's commencement order, and that counsel has agreed to inform this Court of that schedule after it is set. M. I respectfully seek entry of an order (the "Recognition Order") recognizing me as MtGox's "foreign representative," as defined in 1 1 U.S.C. l0l(24), and recognizing the Japan Proceeding as a foreign main proceeding as defined in 11 U.S.C. i5l7(a) and I also seek, on an emergency basis, certain provisional relief pending recognition in order to, as set forth in the Declaration of Tod L. Garnlen ("Garnlen Declaration"), to preserve MtGox's assets and to allow MtGox a necessary breathing period for it to focus on its restructuring efforts 6 Case 14-31229--sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 7 of 34 without the distraction that would result if certain litigation currently pending in the United States were allowed to proceed. 15. When the Tokyo Court issues its final order approving MtGox's reorganization plan, I will seek this Court's assistance in enforcing such final order. 16. Under the auspices of the Tokyo Court and with the ancillary assistance of this Court, the ultimate goal of the Japan Proceeding is to permit MtGox the breathing room necessary to address technical defects in its processing software, investigate the theft of bitcoins through its exchange, and confirm a rehabilitation plan. To effectuate this goal, I respectfully request the relief requested in the Petition and in the Application. I declare under penalty of perjury under the laws of the United States of America that the foregoing is, to the best of my knowledge, information and belief, complete, true and correct. Executed on this 10th of March, 2014 in Tokyo, Japan. 560%/cw, at Robert Marie Mark Karpeles 7 Case 14-31229--sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 8 of 34 fi$$fi%%$fi% $fl26$2fi28B $EmfififlfiE$%20% E$fi$% we =flw--mm - 721/7 - <7 9 1* =fl%--mn fl 03--6271--9900(fi? =flm~mw fl%Ew?4Vf4% -- O3m6267m1241 %H%fi 1.?Efi 1 EXHIBIT A Case 14-31229--sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 9 of 34 0 %1 %2 Efifiwwfi 1 ?ewflfi (1)fi% (R) (R) (R) GD lvbh/1' (R) 15% %fi%%fi%fi 500% Exmfi $500fiW $&23$8H9a Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 10 of 34 %fi)o ffifififififi - <7/I/i - - 2 3 INEJO 4 E, 721//"i/f 0:3 Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 11 of 34 $3 1 ($132 $1331) H2-4.4.1 ~1--125.3.31 95 3,833,803 95 3,838,803 ififlfiifi 21,232 3,831,393 21,232 3,831,393 .'1fii?E?rE+ A 21,137 7,410 31330333331 95 3,838,803 2 53 H24.4.1 ~1-1253.31 0 135,072 0 131,085 A 23,138 21,205 0 29,395 3.381193113113931 A 23137 28,548 8 173% 33 Eafii 330) J: '0 '"033 U, BT03 (E $5 '0 '03; (1) fi?ififi 3 - (2)BTcafi 4 Case 14-31229-sgj15 Doc 3 Entered 03/09/14 23:50:45 Page 12 of 34_ 7 $fifiK%mf%901?fiW8 1 (3)Wfl?% 0 77B 137)) 18,627,790 P1, Yubikey 83' 3,419,440 F1, 22,047,230 P98 (4) :2 LOGIC J: In 5 7 3 1:413 1 9, 7,968,000 F1, (5)fifl%H@ 801,249,564 (6) E13 51:86 E) 5; 091:3 9 $62 9,1211% 1,384,057,302 F9, (7) 8+ 107,510,694 P38 8 (9) 851% 540,000 Pi, ?19 5: 10,586,875 P3 3,841,866,163 P3 Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 13 of 34 4 fifimmfi (2)BTcfi%$ 9m9n?mW (3) fii? 0 5,502,576,538 P3 A)o 3 %4 1 Efifiwmfifififi five fifi%fi$# Efififi 2 3 %5 EL %6 Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page ?fifigfifif?o %9 1 $fiTm??%fi Mcca1ebfi l- l~L) McCa1ebW%, I BANNEH, MC ale Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45. Page (II-7-5522 53$) (U.S. Department 0fHome1andSecurity) (JJCF 231050 LCCJID, $5 :@%%fiaA 2012 Inc. tyv~t?coinLab Inc 1nem$fiA (4) . 7 93:18 0743 Wransaction Ma1leabi1ityJ &0:f 0, By :14 Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 16 of 34 mfialetaeuwaawiwga: 5 i:7:eo7':03c:t3ZJ:3Z2 6&1 $322 efizfi 2 2 5 El H1 fi%28%WEE)fi%%Lko 2 ewfi??o Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Enter?d 03/09/14 23:50:45 Page 17 of 34 1 0 1 mfififii?afimafiw?o 2 3 (1) isiifiiflzovvc 10 Case 14-31229-sgj'15 Doc 3 Filed 03/0.9/14 Entered 03/09/14 23:50:45 Page 18 of 34 fimmwo $1 Efi $2 $3 $4\5 $6 $7 $8 Q: 7 Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page-Emfimbfififlmfiefiwo $fl26$2H28a 2 0 EB fiflEfi%fi 7 1% fi%W%%E fl -- Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 20 of 34 [translation] 2014 (rehabilitation) no. 12 Application for commencement of civil rehabilitation DECISION Shibuya 2-11-5, Shibuya-ku, Tokyo Rehabilitation debtor MtGox Co., Ltd. Representative Director Robert Marie Mark Karpeles JUDGMENT 1. We order the supervision of MtGox Co., Ltd. to be conducted by a supervisor. 2. We hereby appoint as supervisor: Attorney-at-law Nobuaki Kobayashi Nagashima Ohno & Tsunematsu Kioicho Building, Kioicho 3-12, Chiyoda-ku, Tokyo 3. The supervisor shall be authorize to grant permission in lieu of the Court to the effect that the other party's claim arising from an act stipulated in Article 120.1 of the Civil Rehabilitation Law shall be a common benefit claim. 4. The rehabilitation debtor shall require the consent of the supervisor with regard to any of the acts listed below: (1) transfer of right, establishment of a security interest, lease or any other disposition with regard to properties held or owned by the rehabilitation debtor (except for transactions in the ordinary course of business) (2) transfer, establishment of security interests or any other disposition with regard to a claim of the rehabilitation debtor (except with regard to collection done by the rehabilitation debtor) (3) transfer of property (except for the purchase of products and other transactions done in the ordinary course of business) (4) lending (5) borrowing of money (including discounting of bills) and guarantees (6) discharge of debts, renunciation to rights or to assumptions of debts without consideration (7) redemption of the collateral for a right of separate satisfaction Case 14-31229-sgj15 Doc 3 Filed 03/09/14 (8) Entered 03/09/14 23:50:45 Page 21 of 34 execution of agreements which may assist in the maintenance or rehabilitation of the rehabilitation debtor's business and of agreements related to the selection of parties which may provide said assistance. 5. From February 28, 2014 onward, the rehabilitation debtor shall submit to the Court and to the supervisor no later than on the 10th of the following month a written report on the situation of the business and the administration of the property of the rehabilitation debtor as of the end of each month. February 28, 2014 Tokyo District Court 20th Civil Chamber Head Judge Yasushi Kanokogi Judge Hideki Kanazawa Judge Masaki Higuchi This is an original. Same date, same court Court clerk Kazui Sakuraba [seal] Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:4$ Page 22 of 34 %fi%fiMTG0X fi%%fifimfi& i 2 fififimew me e% 3 fififi?fitzt, 6E3fi 2 8 K?fiefimbfifihfleetwo $fi26$2E28H $fiflfifi%WE$%20% fi%Efi%E fi%fi %fi%E fifizafizfizsa fiEflfifi%WE$%2o% fiflfi? 1:111: ITLI Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 23 of 34 [translation] 2014 (rehabilitation) no. 12 Application for commencement of civil rehabilitation DECISION Shibuya 2-11-5, Shibuya-ku, Tokyo Rehabilitation debtor MtGox Co., Ltd. Representative Director Robert Marie Mark Karpeles JUDGMENT 1. We order an investigation of MtGox Co., Ltd. to be conducted by an examiner. 2. We hereby appoint as examiner: Attorney-at-law Nobuaki Kobayashi Nagashima Ohno & Tsunematsu Kioicho Building, Kioicho 3-12, Chiyoda-ku, Tokyo 3. The examiner shall investigate the following matters and report in writing its findings no later than on March 28, 2014: (1) Existence of a cause for commencement of civil rehabilitation (2) Existence of causes listed in Article 25.2(2) to (4) of the Civil Rehabilitation Law (3) Situation of the business and properties of the rehabilitation debtor (4) Other matters of report or opinion requested by the Court. February 28, 2014 Tokyo District Court 20th Civil Chamber Head Judge Yasushi Kanokogi Judge Hideki Kanazawa Judge Masaki Higuchi This is an original. February 28, 2014 Tokyo District Court 20th Civil Chamber Court clerk Kazui Sakuraba [seal] Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 24 of 34 - 711/? - <79 - 3? fiwflfi?brutefiwo fiflzafizfizaa $fiflfifi%WE$%20% fiflEfi%fi 'esFxe awe fi%fi anew awm%ee% fl 4 Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 25 of 34 [translation] 2014 (rehabilitation) no. 12 DECISION Shibuya 2-11-5, Shibuya-ku, Tokyo Rehabilitation debtor MtGox Co., Ltd. Representative Director Robert Marie Mark Karpeles The Court acknowledges the existence of special circumstances as stipulated under Article 27.1 of the Civil Rehabilitation Law and hereby decides as follows. JUDGMENT No forced execution or preliminary attachment or disposition shall be made by a rehabilitation creditor on the basis of a rehabilitation debt with regard to the properties of the rehabilitation debtor during the period until a decision shall be made with regard to the application for commencement of civil rehabilitation. February 28, 2014 Tokyo District Court 20th Civil Chamber Head Judge Yasushi Kanokogi Judge Hideki Kanazawa Judge Masaki Higuchi This is an original. Same date, same court Court clerk Kazui Sakuraba [seal] Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 26 of 34 $m26@%12% fiifififi fi?%fi%fi%% :t 2 3 fimzefizfizsfi EKflfififlWE$%2o% fiflfififlfi fiflfi 16$ fifizefizfizaa EfiflfififlfiE$%20% fififi%EEUR Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 27 of 34 [translation] 2014 (rehabilitation) no. 12 DECISION Shibuya 2-11-5, Shibuya-ku, Tokyo Rehabilitation debtor MtGox Co., Ltd. Representative Director Robert Marie Mark Karpeles JUDGMENT The rehabilitation debtor is hereby prohibited to do any of the following. 1. Repayment or provision of security with regard to any debt (except those listed below) having its cause February 27, 2014 or earlier Debts collected pursuant to public levy or other national tax law; Debts arising from the employment relationship between the rehabilitation debtor and its employees Debts related to the rent, utilities and communications of the premises of the rehabilitation debtor 2. The transfer, lease or any other disposition of any rights related to properties owned or held by the rehabilitation debtor (except those made in the ordinary course of trade) 3. The transfer, establishment of a security interest or any other disposition of any claim of the rehabilitation debtor. February 28, 2014 Tokyo District Court 20th Civil Chamber Head Judge Yasushi Kanokogi Judge Hideki Kanazawa Judge Masaki Higuchi This is an original. February 28, 2014 Tokyo District Court 20th Civil Chamber Court clerk Kazui Sakuraba [seal] Entered 03/09/14 23:50:45 Page 28 of 34 iI1fiJZ26fl3(fi) imzzafisfl 10 El . fig?fi 3 fifii mwfim .1 .- -.- %Wi . %1 $fi(R)fl% 5' JA 3: G55 03lfiJ?'E'??55Representative) %2 $i(R)flm EXHENTF Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 29 of 34 1. 351322 2 8 El @322 (3) $1 bzfililn, 0, Z?fi?fl 5? (ET ?1050) 2. 'Jiv?rfilil (JET Ffil?lilj 9:Ir"5o) 3, (E1050if:, %0)li9: fit: J: .1: 3 EEK) 67113) C: ?1.14: '9 Wfi?fi J: 5 13, 6. 131103 5: :18 L, 1 Elfifififi El $3162 2 69 7. L, 1 5 'fitzg/3< (ELF $fi'CJ Eb' 50) 5'1? 5 C: V), *b)SUf*h1ZE133: 8. Cami, (E E: 9. 9* /7 13'? - (David W. Parham) %Kla_El Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 30 of 34 1 0. (HT ?1050) (E13 2) Efi?? fifififl W%1%fi $%2%fi fifi?fi 1% 3. %1iE Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 31 of 34 fifififlfifi 1 . CoinLab, Inc. CoinLab, Inc. '7 Wfi :%fi%fiMTGoX 534 Gregory Greene FF we Mark Karpeles ifififiifl 5 n7Gregory Greene Mark Karpeles (EA, ?fifio Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 32 of 34 [translation] 2014 (rehabilitation) no. 12 March 10, 2014 (Supervisor's opinion) I consent to the application below. March 10, 2014 Supervisor Supervisor Attorney-at-law Nobuaki Kobayashi (seal and signature) Attorney-at-law Nobuaki Kobayashi Application for consent of supervisor (assets disposal) Counsel of Applicant MtGox Co., Ltd. Baker & McKenzie Attorney-at-law Hideyuki Yamamoto Attorney-at-law Junko Suetomi Yodoyabashi & Yamagami LPC Attorney-at-law Akio Shinomiya Attorney-at-law Kazumasa Kawai 1. Purpose of the application The rehabilitation debtor hereby requests consent to execute an entrustment agreement with David W Parham of Baker & McKenzie Dallas Office with regard to the following matters: 1. A petition to have this civil rehabilitation proceeding accepted under US Federal Insolvency Law Chapter 15. 2. A petition to stay the proceedings of the US lawsuits listed in exhibit. Provided, however, the Foreign Representative for the purpose of the above procedures shall be Mark Marie Robert Karpeles, representative director of the rehabilitation debtor. 2. Reasons for the application Case 14-31229-sgj15 Doc 3 Filed 03/09/14 1. Entered 03/09/14 23:50:45 Page 33 of 34 In relation with the application for commencement of a civil rehabilitation procedure made on February 28, 2014 (Tokyo District Court 2014 (rehabilitation) no. 12), the applicant received from the Tokyo District Court an order prohibiting the disposal of assets (the "Preservation Order"). 2. The rehabilitation debtor has assets in the United States of America ("US"). 3. Lawsuit no. 1 in the attached exhibit of US lawsuits is continuing in the US against the rehabilitation debtor. In addition, the class action listed as no. 2 (the class is not certified yet) has been initiated and a request has been made to obtain a court order to freeze the assets held by the rehabilitation debtor in the US (the "Class Action Preservation Order"). 4. The first oral hearing in relation with the Class Action Preservation Order shall take place on March 11, 2014 (US Central Standard Time) and the rehabilitation debtor needs to take defensive action since its US assets risk being attached. 5. Further, the US assets of the rehabilitation debtor consist mainly of cash deposits. The sums attached by the US Department of Homeland Security could be used as operating capital should it be released which means that the Class Action Preservation Order may have a negative impact on the progress of this civil rehabilitation. In addition, should the Class Action Preservation Order be accepted and should a situation where the plaintiffs of the class action would get the preference over the rehabilitation creditors with regard to the US assets arise, a situation of unfairness among the rehabilitation creditors would arise and there would be a risk that the fair repayment to creditors be impeded. 6. As indicated above, it is highly necessary to stop the class action proceeding and prevent the plaintiffs in the class action to get a preservation order over the US assets of the rehabilitation debtor and further taking into account the planned first hearing on March 11, 2014, it is urgent to take defensive action. 7. The analysis made by US lawyers indicates that in order to preserve the US assets of the rehabilitation debtor and stop the class action, the rehabilitation debtor should demand the recognition of a foreign insolvency procedure under Chapter 15 of the US Federal Bankruptcy Law (the "Chapter 15 Petition") and obtain the extension over US assets of the effect of the civil rehabilitation. In addition, should this petition be granted, during the 30 days period until an automatic stay comes into effect, it is also necessary to demand a stay of the proceedings under the US lawsuit and the class action on the basis of the Chapter 15 Petition in each competent jurisdiction (federal district courts). 8. It is obvious that the Chapter 15 Petition and the demands in each federal Case 14-31229-sgj15 Doc 3 Filed 03/09/14 Entered 03/09/14 23:50:45 Page 34 of 34 district courts will be more efficiently and speedily done by US insolvency law experts. 9. The rehabilitation debtor has asked David W Parham of the Dallas Office of Baker & McKenzie, an expert in US insolvency law and with whom consultations have already taken place, to prepare for proceeding with the Chapter 15 Petition. 10. We believe that it is appropriate to execute an entrustment agreement with said law firm (Exhibit 2), to pay an estimate of USD 75,000 (approximately JPY 7.5 million) as fees for the Chapter 15 Petition and the petitions for stays and to quickly start said petitions. 11. In addition the payment of said fees of USD 75,000 is not likely to impede the financing of the rehabilitation debtor. 12. Accordingly, this application is being made since there is a need to promptly pay these lawyers fees in accordance with said entrustment agreement and further since this payment is possible. Exhibits 1. List of US lawsuits 2. Entrustment agreement