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Tihan Seale Announces Bitcoinica Liquidation

Tihan Seale Announces Bitcoinica Liquidation

Op-ed - Tihan Seale Announces Bitcoinica Liquidation

As was previously reported, Bitcoinica was shut down on May 11th, 2012 as a result of a hacker stealing 18,547 BTC (then worth about $92,500) from the service’s hot wallet. Two months later, while the service was in the midst of rebuilding user data to issue refunds, a malicious entity was able to gain access to Bitcoinica’s MtGox account and withdraw 40,000 BTC (then worth about $310,000) and $40,000 USD.

After Zhou Tong, the creator of the service, sold Bitcoinica to Wendon Group, the Bitcoin Consultancy was hired to be responsible for maintaining the service. Once the service was shut down, they were also responsible for refunding the service’s users. Recently, the three members of the Bitcoin Consultancy have allegedly ceased all communications, and have stopped refunding users entirely. Due to this deafening silence from the Bitcoin Consultancy, Tihan Seale has stepped up, and begun the process of liquidation via receivership in New Zealand. Seale has claimed responsibility to Wendon Group for monitoring past investments, which evidently can include cleanup of failed investments.

Evidence made public by a variety of Bitcoin users seemed to indicate that Zhou Tong himself was responsible for at least the most recent hack. Within hours of this information coming to light, Zhou Tong claimed to identify the third hacker instead as Chen Jianhai, a previous business associate of his. After Zhou Tong supposedly confronted Jianhai with evidence of his theft, Jianhai agreed to return at least some of the Bitcoinica funds. Zhou states that he can recover, at most, about $330,000 worth of combined USD and Bitcoins from Jianhai, leaving the users short $42,000.

User deposits at Bitcoinica at the time of shut down have been estimated at just over $1M USD of total valuation. With $442,500 of those funds stolen, but 15,000 BTC (currently worth about $140,000) recently returned by Zhou Tong on behalf of Chen Jianhai, 38% of the funds paid out so far, and the $92,500 hack apparently being too much for Bitcoinica to pay out of its own pocket, it seems reasonable to estimate that Bitcoinica only holds around $390,000 to $490,000 in remaining assets with which the receiver of a liquidation might be able to pay back to users of the service. Assuming this estimate holds true, it would mean that users of the service could expect, at the maximum, to receive around 75%-80% of their account balances at the time Bitcoinica was shut down. If Zhou Tong is able to recover the additional $190,000 from Chen, it would mean that users of the service could expect, at the maximum, to receive over 95% of their account balances at the time Bitcoinica was shut down. Legal fees or other currently-unknown creditor claims could further erode this eventual payout percentage.

Have you been affected by the Bitcoinica debacle?