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Facial recognition startup Kairos settles lawsuits with founder and former CEO Brian Brackeen

Posted by on May 31, 2019 in Artificial Intelligence, brian brackeen, kairos, Lawsuit, TC | 0 comments

Facial recognition startup Kairos, founded by Brian Brackeen, has settled its lawsuit with Brackeen following his ouster from the company late last year. In addition to forcing him out of the company he founded, Kairos sued Brackeen, alleging the misappropriation of corporate funds and misleading shareholders. In response, Brackeen countersued Kairos, alleging the company and its CEO Melissa Doval intentionally destroyed his reputation through fraudulent conduct.

Now, both Kairos and Brackeen are ready to put this all behind them. Both parties have dropped their respective lawsuits and reached a settlement, which entails continuing to recognize Brackeen as the founder of Kairos.

“We are pleased to be putting this episode behind us, and the opportunity to keep the business focused on growth,” Doval said in a press release. “We thank Mr. Brackeen for working towards a resolution, and wish him the best for his future endeavors.”

Brackeen tells TechCrunch he’s excited about the settlement and can now move on to become an investor at Lightship Capital, a new fund where he serves as managing partner. The fund is geared toward supporting underrepresented founders and does not require board seats to invest.

“I have become the investor I didn’t have enough of…founder focused, principled, and growth minded,” Brackeen said in an email to TechCrunch. “Our firm puts founder support at the front of our thinking because we know what happens to shareholder value when you don’t. That’s the blessing that’s come from this chapter in my life. On to the next!”


Source: The Tech Crunch

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Facebook sues analytics firm Rankwave over data misuse

Posted by on May 11, 2019 in Apps, Cambridge Analytica, Facebook, facebook platform, Facebook Policy, Lawsuit, Mobile, Policy, Social, TC | 0 comments

Facebook might have another Cambridge Analytica on its hands. In a late Friday news dump, Facebook revealed that today it filed a lawsuit alleging South Korean analytics firm Rankwave abused its developer platform’s data, and has refused to cooperate with a mandatory compliance audit and request to delete the data.

Facebook’s lawsuit centers around Rankwave offering to help businesses build a Facebook authorization step into their apps so they can pass all the user data to Rankwave, which then analyzes biographic and behavioral traits to supply user contact info and ad targeting assistance to the business. Rankwave also apparently misused data sucked in by its own consumer app for checking your social media “influencer score”. That app could pull data about your Facebook activity such as location checkins, determine that you’ve checked into a baseball stadium, and then Rankwave could help its clients target you with ads for baseball tickets.

The use of a seemingly fun app to slurp up user data and repurpose it for other business goals is strikingly similar to how Cambridge Analytica’s personality quiz app tempted millions of users to provide data about themselves and their friends.

Rankwave touts its Facebook data usage in this 2014 pitch deck

TechCrunch has attained a copy of the lawsuit that alleges that Rankwave misused Facebook data outside of the apps where it was collected, purposefully delayed responding to a cease-and-desist order, claimed it didn’t violate Facebook policy, lied about not using its apps since 2018 when they were accessed in April 2019, and then refused to comply with a mandatory audit of its data practices. Facebook Platform data is not supposed to be repurposed for other business goals, only for the developer to improve their app’s user experience.

“By filing the lawsuit, we are sending a message to developers that Facebook is serious about enforcing our policies, including requiring developers to cooperate with us during an investigation” Facebook’s director of platform enforcement and litigation Jessica Romero wrote. Facebook tells TechCrunch that “To date Rankwave has not participated in our investigation and we are trying to get more info from them to determine if there was any misuse of Pages data.” We’ve reached out to Rankwave for its response.

Cambridge Analytic-ish

Facebook’s lawsuit details that “Rankwave used the Facebook data associated with Rankwave’s apps to create and sell advertising and marketing analytics and models — which violated Facebook’s policies and terms” and that it “failed to comply with Facebook’s requests for proof of Rankwave’s compliance with Facebook policies, including an audit.” Rankwave apparently accessed data from over thirty apps, including those created by its clients.

Specifically, Facebook cites that its “Platform Policies largely restrict Developers from using Facebook data outside of the environment of the app, for any purpose other than enhancing the app users’ experience on the app.” But Rankwave allegedly used Facebook data outside those apps.

Rankwave describes how it extracts contact info and ad targeting data from Facebook data

Facebook’s suit claims that “Rankwave’s B2B apps were installed and used by businesses to track and analyze activity on their Facebook Pages . . . Rankwave operated a consumer app called the ‘Rankwave App.’ This consumer app was designed to measure the app user’s popularity on Facebook by analyzing the level of interaction that other users had with the app user’s Facebook posts. On its website, Rankwave claimed that this app calculated a user’s ‘Social influence score’ by ‘evaluating your social activities’ and receiving ‘responses from your friends.’”

TechCrunch has found that Rankwave still offers an Android app that asks for you to login with Facebook so it can assess the popularity of your posts and give you a “Social Influencer Score”. Until 2015 when Facebook tightened its policies, this kind of app could ingest not only a user’s own data but that about their Facebook friends. As with Cambridge Analytica, this likely massively compounded Rankwave’s total data access.

Rankwave’s Android app asks for users’ Facebook data in exchange for providing them a Social Influencer Score

Facebook Delays Coming After Rankwave

Founded in 2012 by Sungwha Shim, Rankwave came into Facebook’s crosshairs in June 2018 after it was sold to a Korean entertainment company in May 2017. Facebook assesses that the value of its data at the time of the buyout was $9.8 million.

Worryingly, Facebook didn’t reach out to Rankwave until January 2019 for information proving it complied with the social network’s policies. After receiving no response, Facebook issued a cease-and-desist order in February, which Rankwave replied to seeking more time because it’s CTO had resigned, which Facebook calls “false representations”. Later that month, Rankwave denied violating Facebook’s policies but refused to provide proof. Facebook gave it more time to provide proof, but Rankwave didn’t respond. Facebook has now shut down Rankwave’s apps.

Rankwave claims to be able to extract a wide array of ad targeting data from Facebook data

Now Facebook is seeking money to cover the $9.8 million value of the data, additional monetary damages and legal fees, plus injunctive relief restraining Rankwave from accessing the Facebook Platform, requiring it to comply with Facebook’s audit, requiring that it delete all Facebook data.

The fact that Rankwave was openly promoting these services that blatantly violate Facebook’s policies casts further doubt on how the social network was policing its platform. And the six month delay between Facebook identifying a potential issue with Rankwave and it even reaching out for information, plus another several months before it blocked Rankwave’s app shows a failure to move swiftly to enforce its policies. These blunders might explain why Facebook buried the news by announcing it on a Friday afternoon when many reporters and readers have already signed off for the weekend.

For now there’s no evidence of wholesale transfer of Rankwave’s data to other parties or its misuse for especially nefarious purposes like influencing an election as with Cambridge Analytica. The lawsuit merely alleges data was wrongly harnessed to make money, which may not spur the same level of backlash. But the case further proves that Facebook was too busy growing itself thanks to the platform to properly safeguard it against abuse.

You can learn more about Rankwave’s analytics practices from this 2014 presentation.


Source: The Tech Crunch

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Elon Musk’s ‘pedo guy’ defamation case is going to trial

Posted by on May 10, 2019 in Automotive, Buzzfeed, drew olanoff, Elon Musk, Lawsuit, SpaceX, TC, Tesla, Vernon Unsworth | 0 comments

A defamation case filed last year against Tesla and SpaceX CEO Elon Musk after he repeatedly called a British cave diver “pedo guy” will go to trial on October 22, a U.S. district judge determined Friday.

Vernon Unsworth, the British cave diver, filed a defamation lawsuit in September 2018 in the U.S. District Court for the Central District of California after Musk called him a “pedo guy” and made other statements insinuating he was a pedophile in a public attack on Twitter.

The Verge was the first to report the court decision.

A Tesla spokesperson could not be immediately reached for comment

U.S. District Judge Stephen V. Wilson denied a motion to dismiss the case and instead scheduled a date for trial. The decision means that Unsworth’s case is strong enough to go to trial.

Musk’s lawyers argued that statements on the internet, and more specifically on unmoderated forums like Twitter, are presumptively opinion, not objective fact. Defamation law doesn’t apply to opinions or insults. But Wilson rejected Musk’s argument, in part because of an email interaction he had with BuzzFeed reporter Ryan Mac.

“Considering the totality of the circumstances—including the general context of Defendant’s statements, the specific context of the statements, and the statements’ susceptibility of being proved true or false—a reasonable factfinder could easily conclude that Defendant’s statements, as pleaded in the complaint, implied assertions of objective fact,” Wilson wrote in the decision.

The lawsuit alleges that between July 15 and August 30, Musk periodically used Twitter and emails to the media to publish false and defamatory accusations against Unsworth, including accusations of pedophilia and child rape.

The initial “pedo guy” attack came after Unsworth gave a critical interview to the media saying Musk’s mini sub “had absolutely no chance of working.” The diving expert ended an interview segment by suggesting Musk should “stick his submarine where it hurts.”

Musk lashed out on Twitter and insinuated that Unsworth was a pedophile. He later deleted the offending tweet and tried to backpedal — even offering an apology of sorts on Twitter. And it could have all ended there. But then Musk dug it all up again during a debate with and ex-TechCrunch journalist Drew Olanoff — once again on Twitter. Olanoff had brought up the “pedo guy” attack as an example of Musk telling untruths.

 


Source: The Tech Crunch

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Student sues JD.com’s billionaire CEO Richard Liu for alleged rape

Posted by on Apr 17, 2019 in Asia, China, Companies, JD.com, Lawsuit, Minnesota, Richard Liu, University of Minnesota, Weibo | 0 comments

A Chinese student has filed a lawsuit against JD.com founder and chief executive Richard Liu, alleging the billionaire businessman raped her in Minnesota back in August, four months after local prosecutors decided not to press charges.

The lawsuit, which was filed in Hennepin County on Tuesday, is seeking damages of more than $50,000. It identifies the student as Jingyao Liu (not related to Richard Liu), an undergraduate student at the University of Minnesota.

JD did not immediately respond to a request for comment on the lawsuit.

Peter Walsh, an attorney for JD.com at Hogan Lovells, says the company is “not in position to comment at this time” but “will vigorously defend these meritless claims against the company.”

Liu has maintained his innocence through his lawyers throughout the investigation. The executive said on social media in December that he had “broken no laws” but felt “extreme self-admonishment and regret” for the pain that his behavior “on that day” brought to his family and wife, who is an internet celebrity known as Sister Milk Tea.

In December, Hennepin County Attorney Michael Freeman said he was not charging Liu because “there were profound evidentiary problems which would have made it highly unlikely that any criminal charge could be proven beyond a reasonable doubt.” He further emphasized his decision “had nothing to do with Liu’s status as a wealthy, foreign businessman.”

Liu’s case has drawn widespread interest in China where the tale of Liu’s rags-to-riches has inspired many. If charged and convicted, Liu could face up to 30 years in prison.

JD’s stock immediately tumbled after the student first accused Liu in August over concerns that the case will hamper his ability to run the company, which is the arch-rival to Jack Ma’s Alibaba and faces growing competition from ecommerce upstart Pinduoduo.

The company’s shares have slowly crawled back since December after the Hennepin County Attorney decided not to charge the founder. Nonetheless, JD is coping with sagging morale as large-scale layoffs hit executives and a new pay scheme threatens to depress income among its armies of couriers.

Updated with JD.com’s statement


Source: The Tech Crunch

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A new lawsuit involving Stanford and Sequoia Capital highlights fights to come over cell-free DNA testing

Posted by on Mar 26, 2019 in CareDx, guardant health, Health, Illumina, Lawsuit, Natera, sequoia capital, Stanford University, TC | 0 comments

This morning, a publicly traded transplant diagnostics company called CareDx, along with Stanford University, sued another publicly traded genetic testing company, Natera, for patent infringement.

Much appears to be at stake, and it all centers on cell-free DNA testing, a type of technology that has already been at the crux of numerous lawsuits and looks poised to play center stage again in future corporate battles.

Loosely defined, cell-free DNA (or cfDNA) technology involves blood tests that enable physicians to understand what’s happening in someone’s body. They’re not looking at red or white blood cells (thus the “cell free” part) but at plasma, which carries pieces of broken-up DNA, among other things.

Companies like newly public Guardant Health are using it to try to ensure that cancer patients receive the right drugs. Prenatal cfDNA screening has meanwhile become a common way to screen for specific chromosomal problems in a developing baby — including Down syndrome, trisomy 13 and trisomy 18. The latter has become particularly popular as an alternative to amniocentesis, a more intrusive, and sometimes high-risk, procedure in which a small amount of amniotic fluid is sampled from the amniotic sac surrounding a developing fetus.

Yet another way that cfDNA testing can monitor clinical conditions and make a major impact on healthcare is by distinguishing the relative proportion of DNA molecules in a patient’s blood after that person has had an organ transplant. Though traditionally, recipients have had to undergo biopsies to gauge whether or not their new organ was being accepted or rejected, it’s now possible to measure through the far-less traumatic process of providing blood samples. (Broadly speaking, if, over time, the amount of donor DNA increases in the patient’s blood, things aren’t going well.)

It’s an important, if relatively new, development, and CareDx, a 19-year-old, Brisbane, Calif.-based company that went public in 2014, claims in its newly filed lawsuit that two patents it controls give it the exclusive right to non-invasively diagnose graft rejection in a great many organ transplant patients via cfDNA testing. What we mean: one of the patents covers “kidney transplant, a heart transplant, a liver transplant, a pancreas transplant, a lung transplant, a skin transplant, and any combination thereof.” The second patent covers 16 different methods, devices, compositions and kits for diagnosing or predicting transplant status or patient outcome.

The patents were awarded to Stanford academics in recent years, including Stephen Quake, a renowned professor of bioengineering and applied physics. Though Stanford owns the patents, however, it licenses them to CareDx, and they’ve dramatically enhanced the company’s prospects. Indeed, while its shares were priced at $10 apiece at the time of its IPO, they’ve been trading at $40 each more recently, thanks largely to its AlloSure test, which is designed specifically for kidney transplant patients and, critically, is now covered by Medicare.

Indeed, CareDx’s lawsuit against 15-year-old Natera, which went public in 2015, accuses it of “preparing to develop and commercialize” a too-similar kidney transplant rejection test beginning in the middle of last year. It’s seeking cash compensation and a court order that blocks the sale of Natera’s offering. It’s an offensive move, too, seemingly, given all those other organs at stake and the markets they could unlock.

Natera, which counts Sequoia Capital’s Roelof Botha as a board member, did not provide management for comment on the suit. Botha also declined through a Sequoia spokesperson to comment. But Natera sent us the following statement about it: “We are confident that we will prevail in this suit should it proceed and do not expect this suit to impact our commercialization plans or disrupt our operations in any way. We are not surprised that CareDx would attempt to disrupt the imminent commercialization of Natera’s innovative organ transplant rejection test, which does not require donor genotyping, and will compete with CareDx’s older test. In recently published studies, Natera demonstrated superior analytical and clinical test performance.”

What happens next remains to be seen, but it’s not the first imbroglio in which Natera finds itself.  A year ago, the gene-testing company Illumina filed a lawsuit against Natera, alleging that the company’s non-invasive prenatal testing infringes a patent that Illumina controls and that relies on analysis of cell-free DNA present in maternal blood. That case is still moving toward a trial. In the meantime, Illumina last year separately won a $26.7 million jury verdict in a lawsuit accusing a subsidiary of Roche Holdings of using patented prenatal testing technology without authorization.

Last year, Natera also agreed to pay $11.4 million to settle a lawsuit with the U.S. government, after it alleged that Natera submitted false claims to several government health programs based on tips by two former Natera employees who filed an earlier whistleblower lawsuit against the company.

Natera — whose founding CEO, Matthew Rabinowitz, stepped down from his position in January of this year, replaced by longtime Natera employee and COO Steve Chapman — denied the allegations and, as part of the settlement terms, did not admit any wrongdoing.

Either way, Natera, CareDx and Illumina aren’t the only ones duking it out over cell-free DNA testing.

In 2017, for example, Guardant filed a lawsuit against rival Foundation Medicine, alleging that Foundation’s advertising for its own liquid and tissue tests harmed both Guardant and cancer patients by misleading oncologists about the relative accuracy and sensitivity of the competing genomic tests. Foundation later sued Guardant, alleging infringement of a patent that covers methods for analyzing a cancer patient’s tissue or blood sample to detect multiple classes of genomic alterations.

The two companies have since settled both without disclosing the terms of their agreement.


Source: The Tech Crunch

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Former CEO Zain Jaffer files wrongful termination lawsuit against Vungle

Posted by on Mar 12, 2019 in Advertising Tech, Lawsuit, Mobile, vungle, Zain Jaffer | 0 comments

Vungle founder Zain Jaffer filed a lawsuit today accusing the mobile advertising company of wrongfully terminating him from the role of CEO.

The lawsuit cites a section of the California labor code that it says “expressly and specifically prohibits discrimination and retaliation by employers based upon an arrest or detention that did not result in conviction.”

Jaffer was arrested in October 2017 in an incident involving his young son — the charges included performing a lewd act on a child and assault with a deadly weapon. Last year, the charges were dropped, with the San Mateo District Attorney’s Office saying it did “not believe that there was any sexual conduct by Mr. Jaffer that evening,” while “the injuries were the result of Mr. Jaffer being in a state of unconsciousness caused by prescription medication.”

Afterwards, Jaffer began looking into either selling his Vungle shares or pursuing a leadership change at the company, something he alludes to in his statement on the suit:

Once I was absolved of any wrongdoing, I was looking forward to a friendly relationship with the Company. Instead, Vungle unfairly and unlawfully sought to destroy my career, blocked my efforts to sell my own shares or transfer shares to family members, and tried to prevent me from purchasing shares in the Company.

When reached by TechCrunch, a Vungle spokesperson declined to comment on the lawsuit.

The suit does not specify the amount that Jaffer is seeking, but his attorney Joann Rezzo reportedly told Bloomberg that he has suffered at least $100 million worth of harm. When asked about damages, Jaffer’s spokesperson sent us the following statement from Rezzo:

The amount to be awarded would be entirely within the discretion of the jury. My firm won almost $20M for an employee who asserted similar claims against Allstate Insurance Company. Mr. Jaffer’s potential recovery is much, much higher.

The suit she’s referring to involved a former Allstate employee who was awarded $18.6 million after he was fired following an arrest for domestic violence and possession of marijuana paraphernalia. All the charges were eventually dismissed.

You can read Jaffer’s full lawsuit below.

Jaffer v. Vungle Conformed … by on Scribd


Source: The Tech Crunch

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Uber agrees to pay drivers $20 million to settle independent contractor lawsuit

Posted by on Mar 12, 2019 in 1099, independent contractors, Lawsuit, Transportation, Uber | 0 comments

At a time when the gig economy is under heavy scrutiny around its practices of classifying workers as 1099 independent contractors, IPO-bound Uber has officially settled a six-year-long case regarding this exact topic.

Today, Uber agreed to pay $20 million to settle the class-action lawsuit, brought forth by Douglas O’Connor and Thomas Colopy way back in 2013. This comes after a judge rejected Uber’s offer to settle for $100 million back in 2016.

The suit claimed Uber classified its drivers as contractors to avoid paying them a minimum wage and providing benefits. Since its original filing, the suit was granted class-action status to represent hundreds of thousands of drivers in California and Massachusetts. That victory for drivers was short-lived when an appeals court ruled Uber’s arbitration agreements were valid and enforceable. That decision reduced the number of drivers in the class to about 13,600.

Those eligible for a payout from the settlement include those who drove for Uber between August 16, 2009, and February 28, 2019, in California or Massachusetts. They must also not be bound by Uber’s arbitration clause.

In addition to the $20 million settlement, Uber has agreed to implement a comprehensive written deactivation policy, a formal appeals process for certain deactivation decisions and quality courses for drivers.

“Uber has changed a lot since 2013. We have made the driver experience even better through improvements like in-app tipping, a redesigned driver app and new rewards programs like Uber Pro,” an Uber spokesperson told TechCrunch. “We’re pleased to reach a settlement on this matter and we’ll continue working hard to improve the quality, security and dignity of independent work.”

But for Shannon Liss-Riordan, the lawyer for the plaintiffs, this is not the end of the issue. While Liss-Riordan said she’s pleased to have reached a settlement, it’s just for a small number of drivers.

“As a result, while we were able to pick up the pieces and achieve this substantial settlement for the drivers not covered by arbitration clauses, other drivers would need to pursue their claims in individual arbitration if they wanted to attempt to recover anything on their claims,” she said in a statement to TechCrunch.

Meanwhile, she’s actively pursuing other cases against gig economy companies that classify their workers as independent contractors. 

“We continue to have cases pending against Amazon, GrubHub, Lyft, DoorDash, Postmates, Handy and many others that are exploiting their workers through this business model,” she said. “Because of arbitration clauses, we are fighting many battles to overcome arbitration, and at the same time, we are also pursuing mass arbitrations against many of these companies.”

The case is O’Connor v. Uber, 13-cv-03826 in the U.S. District Court for the Northern District of California (San Francisco).


Source: The Tech Crunch

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‘Fresh Prince’ actor dismisses his Fortnite dance lawsuit

Posted by on Mar 8, 2019 in fortnite, Lawsuit, TC | 0 comments

Fresh Prince star Alfonso Ribeiro has dropped his lawsuit against Fortnite creator Epic Games for using his “Carlton” dance as an emote in the popular game without his permission.

According to documents filed in LA court, Ribeiro voluntarily dismissed the suit. He had already dropped a suit against Take-Two Interactive similarly related to his dance. Last month, Ribeiro was denied a copyright for his dance by federal officials, which seemed to put the nail in the coffin for his lawsuit.

The “Carlton” dance seems to be pretty immediately recognizable for its dorky arm swinging maneuver, but that didn’t cut it for copyright officials. In the U.S. Copyright Office’s statement denying Ribeiro’s copyright claim, their detailed that his copyright was being refused because the work was a “simple dance routine” and thus wasn’t registrable as a choreographic work.

On one hand, original creative expression should always incentivize creators to keep pushing boundaries. On the other hand, singular dance moves are a bit of an annoying thing to copyright, though I still certainly understand the sentiment. Perhaps it’s for the best that future copyright trolls will have one less arena in which to file suit.


Source: The Tech Crunch

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Woody Allen just sued Amazon for $68 million

Posted by on Feb 7, 2019 in Amazon, Entertainment, Lawsuit, Woody Allen | 0 comments

Woody Allen filed a $68 million suit with the Southern District of New York today over a four-picture deal with Amazon. The suit arrives as Allen’s latest film, “A Rainy Day in New York” has been set in limbo, months after release.

The film, which stars Selena Gomez, Elle Fanning and Jude Law, among others, has been shelved following the latest round of controversy around the filmmaker’s 1992 sexual assault allegations. A number of the film’s stars have since expressed regret at participating in the picture and others have agreed to donate their salaries to charity.

“Amazon has tried to excuse its action by referencing a 25-year-old, baseless allegation against Mr. Allen, but that allegation was already well known to Amazon (and the public) before Amazon entered into four separate deals with Mr. Allen,” the suit reads, “and, in any event it does not provide a basis for Amazon to terminate the contract,” the suit alleges. “There simply was no legitimate ground for Amazon to renege on its promises.”

The Amazon/Allen deal has already resulted in the release of two films — “Wonder Wheel” and “Cafe Society” — with more on the way. As Variety notes, the initial agreement was met with a then tongue-in-cheek comment from Allen, stating, “Like all beginning relationships, there is much hope, mutual affection and genuine goodwill — the lawsuits come later.” 

The rise of the Me Too movement, however, brought past Allen allegations back into the spotlight, and Amazon has noted the increased scrutiny it has experienced as a result.


Source: The Tech Crunch

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The plot to revive Mt. Gox and repay victims’ Bitcoin

Posted by on Feb 7, 2019 in Apps, Banking, Bitcoin, blockchain, Brock Pierce, coinlab, cryptocurrency, cryptocurrency exchange, Developer, Gox Rising, Lawsuit, Mt. Gox, payments, peter vessenes, Security, Startups, Sunlot, TC | 0 comments

It was the Lehman Brothers of blockchain. 850,000 Bitcoin disappeared when cryptocurrency exchange Mt. Gox imploded in 2014 after a series of hacks. The incident cemented the industry’s reputation as frighteningly insecure. Now a controversial crypto celebrity named Brock Pierce is trying to get the Mt. Gox flameout’s 24,000 victims their money back and build a new company from the ashes.

Pierce spoke to TechCrunch for the first interview about Gox Rising — his plan to reboot the Mt. Gox brand and challenge Coinbase and Binance for the title of top cryptocurrency exchange. He claims there’s around $630 million and 150,000 Bitcoin are waiting in the Mt. Gox bankruptcy trust, and Pierce wants to solve the legal and technical barriers to getting those assets distributed back to their rightful owners.

The consensus from several blockchain startup CEOs I spoke with was that the plot is “crazy”, but that it also has the potential to right one of the biggest wrongs marring the history of Bitcoin.

The Fall Of Mt. Gox

The story starts with Magic: The Gathering. Mt. Gox launched in 2006 as a place for players of the fantasy card game to trade monsters and spells before cryptocurrency came of age. The Magic: The Gathering Online eXchange wasn’t designed to safeguard huge quantities of Bitcoin from legions of hackers, but founder Jed McCaleb pivoted the site to do that in 2010. Seeking to focus on other projects, he gave 88 percent of the company to French software engineer Mark Karpeles, and kept 12 percent. By 2013, the Tokyo-based Mt. Gox had become the world’s leading cryptocurrency exchange, handling 70 percent of all Bitcoin trades. But security breaches, technology problems, and regulations were already plaguing the service.

Then everything fell apart. In February 2014, Mt. Gox halted withdrawls due to what it called a bug in Bitcoin, trapping assets in user accounts. Mt. Gox discovered that it had lost over 700,000 Bitcoins due to theft over the past few years. By the end of the month, it had suspended all trading and filed for bankruptcy protection, which would contribute to a 36 percent decline in Bitcoin’s price. It admitted that 100,000 of its own Bitcoin atop 750,000 owned by customers had been stolen.

Mt. Gox is now undergoing bankruptcy rehabilitation in Japan overseen by court-appointed trustee and veteran bankruptcy lawyer Nobuaki Kobayashi to establish a process for compensating the 24,000 victims who filed claims. There’s now 137,892 Bitcoin, 162,106 Bitcoin Cash, and some other forked coins in Mt. Gox’s holdings, along with $630 million cash from the sale of 25 percent of the Bitcoin that Kobayashi handled at a precient price point above where it is today. But five years later, creditors still haven’t been paid back. 

A Rescue Attempt

Brock Pierce, the eccentric crypto celebrity

Pierce had actually tried to acquire Mt. Gox in 2013. The child actor known from The Mighty Ducks had gone on to work with a talent management company called Digital Entertainment Network. But accusations of sex crimes led Pierce and some team members to flee the US to Spain until they were extradited back. Pierce wasn’t charged and paid roughly $21,000 to settle civil suits, but his cohorts were convicted of child molestation and child pornography.

The situation still haunts Pierce’s reputation and makes some in the industry apprehensive to be associated with him. But he managed to break into the virtual currency business, setting up World Of Warcraft gold mining farms in China. He claims to have eventually run the world’s largest exchanges for WOW Gold and Second Life Linden Dollars.

Soon Pierce was becoming a central figure in the blockchain scene. He co-founded Blockchain Capital, and eventually the EOS Alliance as well as a much-derided “crypto utopia” in Puerto Rico called Sol. His eccentric, Burning Man-influenced fashion made him easy to spot at the industry’s many conferences.

As Bitcoin and Mt. Gox rose in late 2012, Pierce tried to buy it, but “my biggest investor was Goldman Sachs. Goldman was not a fan of me buying the biggest Bitcoin exchange” due to the regulatory issues, Pierce tells me. But he also suspected the exchange was built on a shaky technical foundation that led him to stop pursuing the deal. “I thought there was a big risk factor in the Mt. Gox back-end. That was my intuition and I’m glad it was because my intuition was dead right.”

After Mt. Gox imploded, Pierce claims his investment group Sunlot Holdings successfully bought founder McCaleb’s 12 percent stake for 1 Bitcoin, though McCaleb says he didn’t receive the Bitcoin and it’s not clear if the deal went through. Pierce also claims he had a binding deal with Karpeles to buy the other 88 percent of Mt. Gox, but that Karpeles tried to pull out of the deal that remains in legal limbo.

The Supposed Villain

Sunlot has since been trying to take over the rehabilitation proceedings, but that arrangement was derailed by a lawsuit from CoinLab. That company had partnered with Mt. Gox in 2012 to run its North American operations but claimed it never received the necessary assets, and sued Mt. Gox for $75 million. Mt. Gox countersued, saying CoinLab wasn’t legally certified to run the exchange in the US and that it hadn’t returned $5.3 million in customer deposits. For a detailed account the tangle of lawsuits, check out Reuters’ deep-dive into the Mt. Gox fiasco.

CoinLab co-founder Peter Vessenes

This week, CoinLab co-founder Peter Vessenes increased the claim and is now seeking $16 billion. Pierce alleges “this is a frivolous lawsuit. He’s claiming if [the partnership with Mt. Gox] hadn’t been cancelled, CoinLab would have been Coinbase and is suing for all the value. He believes Coinbase is worth $16 billion so he should be paid $16 billion. He embezzled money from Mt. Gox, he committed a crime, and he’s trying to extort the creditors. He’s holding up the entire process hoping he’ll get a payday.” Later, Pierce reiterated that “Coinlab is the villain trying to take all the money and see creditors get nothing.” Industry sources I spoke to agreed with that characterization

Mt. Gox customers worried that they might only receive the cash equivalent of their Bitcoin according to the currency’s $483 value when Gox closed in 2014. That’s despite the rise in Bitcoin’s value rising to around 7X that today, and as high as 40X at the currency’s peak. Luckily, in June 2018 a Japanese District Court halted bankruptcy proceedings and sent Mt. Gox into civil rehabilitation which means the company’s assets would be distributed to its creditors (the users) instead of liquidated. It also declared that users would be paid back their lost Bitcoin rather than the old cash value.

The Plan For Gox Rising

Now Pierce and Sunlot are attempting another rescue of Mt. Gox’s  $1.2 billion assets. He wants to track down the remaining cryptocurrency that’s missing, have it all fairly valued, and then distribute the maximum amount to the robbed users with Mt. Gox equity shareholders including himself receiving nothing.

That’s a much better deal for creditors than if Mt. Gox paid out the undervalued sum, and then shareholders like Pierce got to keep the remaining Bitcoins or proceeds of their sale at today’s true value. “I‘ve been very blessed in my life. I did commit to giving my first billion away” Pierce notes, joking that this plan could account for the first $700 million he plans to ‘donate’.

“Like Game Of Thrones, the last season of Mt. Gox hasn’t been written” Pierce tells me, speaking in terms HBO’s Silicon Valley would be quick to parody. “What kind of ending do we want to make for it? I’m a Joseph Campbell fan so I’m obviously going to go with a hero’s journey, with a rise and a fall, and then a rise from the ashes like a phoenix.”

But to make this happen, Sunlot needs at least half of those Mt. Gox users seeking compensation, or roughly 12,000 that represent the majority of assets, to sign up to join a creditors committee. That’s where GoxRising.com comes in. The plan is to have users join the committee there so they can present a united voice to Kobayashi about how they want Mt. Gox’s assets distributed. “I think that would allow the process to move faster than it would otherise” Pierce says. “Things are on track to be resolved in the next three to five years. If [a majority of creditors sign on] this could be resolved in maybe 1 year.”

Beyond providing whatever the Mt. Gox estate pays out, Pierce wants to create a Gox Coin that gives original Mt. Gox creditors a stake in the new company. He plans to have all of Mt. Gox’s equity wiped out, including his own. Then he’ll arrange to finance and tokenize an independent foundation governed by the creditors that will seek to recover additional lost Mt. Gox assets and then distribute them pro rata to the Gox Coin holders. There are plenty of unanswered questions about the regulatory status of a Gox Coin and what holders would be entitled to, Pierce admits.

Meanwhile, Pierce is bidding to buy the intangibles of Mt. Gox, aka the brand and domain. He wants to then relaunch it as a Gox or Mt. Gox exchange that doesn’t provide custody itself for higher security. Despite the recent crypto recession with prices at multi-year lows, he believes there’s room for another exchange with a brand tied to the early heyday of Bitcoin.

“We want to offer [creditors] more than the bankruptcy trustee can do on its own” Pierce tells me. He concedes that the venture isn’t purely altruistic. “If the exchange is very successful I stand to benefit sometime down the road.” Even if the revived Mt. Gox never rises to legitimately challenge Binance, Coinbase, and other leading exchanges, Piece believes it’s all worth the effort. He concludes, “Whether we’re successful or not, I want to see the creditors made whole.” Those creditors will have to decide for themselves who to trust.


Source: The Tech Crunch

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