SecondMarket

SecondMarket knew about Mt. Gox troubles

February 25, 2014: 12:06 PM ET

Last night's Mt. Gox news did not take everyone by surprise.

140207072219-bitcoin-620xaFORTUNE -- Not everyone was surprised last night when documents leaked about a pending collapse at Bitcoin exchange Mt. Gox.

Last week, I got a tip that SecondMarket was planning to launch what would be the first-ever New York Bitcoin exchange. SecondMarket CEO Barry Silbert declined to comment, except to say that he would be ready to talk after the company's March board meeting. It seemed that plans still needed to be formally approved by the company's board of directors.

Then, on Sunday night, Silbert emailed to suggest we talk on Monday. When we connected at 2pm yesterday afternoon, he told me that the announcement was being accelerated due to some events outside of his control. He declined to provide further information, except about his own company's plans. Our only restriction on publishing the story was that the outside event first had to become public (he expected it to happen within 48 hours) and that the NY Times also had to hit publish on their own piece (seems they had learned about SecondMarket's plans shortly before I had, and had made a similar arrangement).

News of the Mt. Gox troubles broke at around 10pm last night, courtesy of confidential documents posted by Bitcoin blogger and entrepreneur Ryan Selkis. The NY Times would publish shortly after midnight -- in a piece that refers to Selkis by his Randian pseudonym, Ryan Galt -- and we were up a few hours later.

What all of this means, of course, is the SecondMarket was aware of at least something amiss at Mt. Gox by Sunday evening. It's unclear if the company only suspected trouble, or if it already had a copy of (and had authenticated) the "crisis strategy" documents Selkis published.

In a subsequent interview this morning, Silbert declined to discuss when he first heard about the Gox issues or his original source of information. What he did say, however, was that he immediately told all SecondMarket employees that they were prohibited from buying or selling any Bitcoin until further say-so. He also put a hold on any incoming participation in the company's Bitcoin Investment Trust, which effectively works as a currency ETF for the cryptocurrency.

To be clear, I am not suggesting that SecondMarket did anything untoward here. In fact, it appears to have acted ethically. But this experience illustrates how word of the Mt. Gox collapse had already begun to circulate nearly an entire day before it became public, and that it's entirely possible that certain people did, indeed, trade on that information. If this industry wants to survive its infancy, it is going to need regulation very, very soon.

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