The plaintiffs in a case against the ex-CEO of the ill-fated Bitcoin exchange say he is not protected from prosecution under the fiduciary shield doctrine.

The arguments of Mark Karpeles, former head of notorious Bitcoin exchange MtGox, have resulted in a stark response from former clients of the Exchange.

On Tuesday, October 16th, Gregory Greene and Anthony Motto, former customers of MtGox, filed their response to Karpeles’ motion to dismiss with the Illinois Northern District Court.

One of the central points of argument is the so-called fiduciary shield doctrine. This doctrine prevents courts from asserting jurisdiction over a person on the basis of acts taken by that person not on his own behalf, but on behalf of his employer.

Karpeles contends that the fiduciary shield doctrine prohibits the exercise of jurisdiction over him related to actions taken as MtGox’s CEO. He claims that a corporation must be his alter ego so that he may lose the protections of the fiduciary shield.

But the plaintiffs say it is not so. While a finding that a defendant is the alter ego of a subject entity would of course negate any protections afforded by the fiduciary shield doctrine, the doctrine itself is far narrower.

“The fiduciary shield doctrine does not protect a defendant who has decision-making authority and a financial stake in the company that directed him or her to a jurisdiction,” the plaintiffs argue.

According to them, Karpeles controlled all aspects of MtGox’s business. Karpeles acknowledges that he was the sole shareholder of the entity that held 88% of MtGox’s equity. Thus, the fiduciary shield doctrine does not preclude jurisdiction over Karpeles, the plaintiffs say.

Let’s recall that Mark Karpeles is being sued in Illinois by US clients of MtGox who accuse him of:

intentionally, with gross recklessness, or negligently stealing plaintiffs’ bitcoins and fiat currency;

negligence, alleging that Karpeles owed the plaintiffs a duty of reasonable care to prevent improper access and misuse of the plaintiffs’ bitcoins and fiat currency and to allow authorized users complete access to the same and breached those duties;

consumer fraud – Karpeles represented that he would protect MtGox clients’ bitcoins and fiat currency and allow them to buy, sell, trade, and withdraw those funds, while siphoning, or allowing others to siphon, funds from Mt. Gox customers’ accounts.

The plaintiffs also allege that Karpeles concealed that Mizuho Bank was no longer providing international withdrawal services, that thousands of bitcoins had been lost or stolen, and that he was shutting down the exchange and filing for bankruptcy.

The case, captioned Greene v. MtGox Inc. et al (1:14-cv-01437), continues at the Illinois Northern District Court.