Here is the response from Kim Nilsson, Chief Engineer at Wizec who has devoted years to tracking down the coins that were stolen from Mt. Gox. He is regarded among the top experts in the world in blockchain analysis, Bitcoin and cryptocurrency in general. He posted this on Mt. Gox Legal, which he copied from his original thoughts posted on the public Telegram chat:

Hi all. I haven’t been a proper member of MGL so far, only advising at times behind the scenes, but someone donated specifically to have me join and share my opinions and engage more directly with the community, so here goes.

The following is what I’ve commented so far in the MtGoxCreditors telegram chat, that I’ve been asked to repost here. Beware that as such this is not a structured post but just a collection of individual comments.

If ZP were to point out which BTC are supposedly involved in this case of theirs, a blockchain analyst might be able to look at it and evaluate its likelihood of being connected to the MtGox theft. Alas, no such information has been provided. Indeed, very little information of any kind has been provided.

I’m not going to comment in any detail on the topic because I haven’t kept up to date with the details or developments, but from their general approach on this and the fee they demand these people seem anything but honest or honorable, and I question the framing of “something is better than nothing” or “this is as much as you can get” when dealing with demonstrably questionable people.

If the story is true and they need a certain number of creditors to be able to pursue this case in the first place, then wouldn’t creditors’ strongest leverage in negotiations be to not allow themselves to be bullied, and instead call their bluff? “Okay, then nobody gets anything.”

(I ended up commenting in detail later after reading up more.)

On why ZP Legal won’t work with the trustee:

What “powers” do these guys need beyond a normal retainment for legal representation, and why? And why so quickly decide to stop talking to the trustee? This seems like a pretty thin justification for avoiding what should normally be the obvious way forward.

Legally speaking, MtGox is the victim of the theft, and the trustee is the representative of MtGox. The trustee is single-handedly able to act on behalf of everyone, but instead ZP Legal opts to try to recruit individual creditors via an insider spokesperson? Sorry but it’s hard not to get the feeling they’d rather have people who don’t think too much before signing on.

On building trust:

As for providing proof that any of what they say is true, they’re paranoid what would happen if we knew the information ourselves, yet they’re simultaneously so confident that only they can get the recovery that they’re charging a billion dollars for it?

Would they show any evidence to a designated trusted party that could vouch for its credibility while agreeing not to pass the information itself on? Or is trust only flowing one way here?

I’m not trying to rain on anyone’s parade, nor question anyone who thinks this deal is a good idea, but there are far too many red flags raised here for me, and even if my own tiny claim had been large enough to attract the attention of people like this I would not go along with anything that’s making this many wrong turns on the road of common sense.

I hope I have established myself as someone who doesn’t think or say things without reason, and that these kind of concerns don’t get casually swatted away as conspiracy theories. I don’t know if these guys are legit or not; they may all be fine upstanding members of society trying to do what’s right for everyone. But they sure are acting like a bunch of scammers.

On the dubious nature of ZP Legal’s “cut”:

If someone steals my wallet, and later it’s found but the finder won’t turn it back unless he gets to keep half the money that was in it, that’s theft and extortion.

If someone finds my stolen paper wallet and tells me that if I send them my password they’ll send half of the funds back to me, that’s theft and extortion.

If ZP Legal can help recover funds they’re entitled to fair compensation for their work. Not a “cut”, and certainly not the bulk of it. To state that creditors aren’t the main beneficiary of this proposal isn’t a conspiracy theory, it’s a plain reading of the proposed numbers.

On ZP Legal’s negotiation strategy, and employing Andy:

I offer the observation that it was in ZP Legal’s best interests to approach creditors individually and in limited fashion, pitting us all against each other in a classic prisoner’s dilemma and having people jump at the chance to accept the deal as-is, lest someone else take your spot.

Now, I don’t believe for a second that Andy is here to sell out creditors; he’s a nice guy who has put in a lot of work over the years and accomplished a lot of good for all creditors, which has earned him the trust and respect of many. But may I suggest that this position of trust is precisely why ZP Legal approached him and offered to compensate him? (Same goes for Fortress.)

You don’t need to “turn evil” in order to be ethically compromised; all they typically want from you is a foot in the door and for you to keep an open mind. In practice though this means that you ever so slightly begin to entertain and defend ideas that you would otherwise reject, and it’s very easy to be blind to that bias because “you’re just keeping an open mind”.

It’s not really about Andy as a person though, it’s about whether creditors as a group are acting in our own best interest or are being manipulated — not by Andy, but by the people who approached him. It’s in this context that it’s important to always check our own thinking.

On Daniel Kelman’s comments:

[…] I read that post and I agree with it. Honestly all the talk about Andy is a red herring that distracts from rationally evaluating the deal itself. But it’s a distraction that’s hard to avoid — biases don’t go away just because we declare them, whether it be Andy possibly being a bit too open-minded about our Russian friends, or the intuitive trust people place in Andy’s opinion even though he constantly repeats that you should decide for yourselves.

Let me put it this way: a situation like this is not the time to display your trust in Andy as a person by asking him to keep sitting on multiple chairs and have conflicting incentives. That’s an awkward position for him, and one that could potentially expose him to legal risk in the future.

Do everyone a favor and acknowledge openly that he’s acting on ZP’s behalf in this case, so he can be cleanly considered as on their side and nothing else. For example, should the other side have access to all internal creditor communication in MGL? He can’t objectively advise both sides.

None of this is shitting on Andy or denying his many past contributions. It’s just being professional and trying to keep proceedings clean from influence from biases or conflicts of interest, so people are in a better position to act rationally. You can still like the guy!

On speculations on why ZP Legal doesn’t want to work with the trustee:

    [In reply to Anders]

I can see that interpretation, though I can’t help but think that it is quite charitable, at least if that quoted email is accurate and they just stopped responding to the trustee.

Granted, perhaps some people are just looking for reasons to dismiss this deal on account of “damn shady Russians” or whatever, but what have they actually done right so far? What reasons would you say that creditors have to trust them and find them credible and professional? So far most arguments in favor of the deal seem to boil down to “there’s no other choice, it’s this or nothing”.

On Andy’s role:

    [In reply to Andy Pag]

    Thanks for the detailed reply. I appreciate your position, and I’m sure you’ve done plenty of pushback towards ZP to try make the deal more favorable to creditors. I do however believe that through your engagement with them you have lost the fresh-eyed perspective of other creditors who are seeing this for the first time. (And I hope this response will be the last comment I make about your personal role.)

Let’s not mince words; this proposal is extortion, plain and simple. Not only are their demands on a Dr. Evil level, but everything is happening under dubious circumstances where we are not able to verify any claims made by them. Even Hollywood kidnappers usually put the victim on the phone first! You — and by extension all of us — are being asked to take everything on faith; ZP said this, ZP concluded that, ZP says there are no other options, etc.

I trust that you’re working for the benefit of everyone and have absolutely no intent to mislead anyone. It’s good that all these things being brought up are actually being looked into and followed-up behind the scenes, something I think people easily miss that is the mark of a functioning organization. But I have seen some noticeable psychological bias in effect in several people already, and that’s why I speak up. I believe you when you say you’ll walk away if this ends up looking too bad — I just think you’ll stick with it and try to make it happen a little harder than the average guy. :wink:

I appreciate your intention of coming into this as a simple go-between to connect people at a negotiating table, but you’ve long since overstepped that neutral position by being cozy with both sides and even accepting compensation from ZP Legal. And even if it wasn’t your intention, that was obviously a transaction to buy some of your pull with creditors. Can you say with certainty that you haven’t given this proposal a bit more benefit of the doubt or credibility now than you otherwise would? Would you blame people for having doubts?

You don’t have to be actively telling people to accept the deal — I know you aren’t! But your influence is already at work by you presenting the deal, answering skeptics and working to keep things moving along. That’s why people keep offering to pay you for your time and attention, because people look up to you and will pay attention to what you say.

Speculating about ZP Legal’s real objectives:

(In light of ZP Legal’s description on https://www.legal500.com/c/russia/private-client)

Zheleznikov & Partners advises private clients on a diverse range of areas including business-related matters, such as corporate structuring, protection of assets and subsidiary liability resolution, as well as on real estate transactions and family law issues including divorce proceedings and inheritance matters. Roman Scherbinin and Vyacheslav Golenev are the main contacts.

    So our so-called experts on recovering criminal assets are actually specialists on how to protect assets from the authorities. Who would have thought.

So, given that we seem to be on the opposite end of this firm’s “normal” business, how can we be sure that we’re the real client here? The difference between $100m profit (5%) and $1b profit (50%) isn’t worth stonewalling over, it’s still insane profit. Yet they’re prepared to jeopardize the entire deal by insisting on 50%+.

If they’re actually safeguarding/laundering this money for the criminal though, the difference between them giving up 50% and giving up 95% is gigantic. In such a scenario, we’re not the beneficiary, we’re the fee. Food for thought.

    So are people who sign up for this deal at risk of getting caught up in a money laundering investigation a few years down the line? Maybe not, but how can you even evaluate the risks if ZP Legal isn’t telling you anything?

    But hey, something is still better than nothing, right?

On the (potential) size of the contingency fee:

    A 50% fee (1 billion) would comfortably place this firm at the top spot for the largest contingency fee ever, I believe.

    Closest competitors:

        $688 millon (Enron)
        $555 million (Deepwater horizon)
        $500+ million (Lehman brothers)

    (These are usually huge cases handled by multiple firms of uptowards a hundred lawyers, where the fee is split between all of them.)