Former Mt Gox Chief Arrested In Tokyo Over Alleged Bitcoin Theft

Mark Karpeles, the 30-year-old former chief executive of Bitcoin exchange Mt Gox, has been arrested in Japan regarding the alleged theft of about £640,000 in the digital currency.

The theft is connected to Mt Gox’s loss in February of last year of some 850,000 Bitcoins, a total that amounts to about 7 percent of all the Bitcoins in existence, and was worth more than £300 million at the time.

Mt Gox, once the world’s largest Bitcoin exchange, filed for bankruptcy later that month.

Fraud

The Tokyo Metropolitan Police Department arrested French national Karpeles in his Tokyo apartment on Saturday morning, according to Japanese media reports, accusing him of transferring some of the missing funds into an account in his own name.

In a statement, police said Karpeles had “unjustly inflated the balance” of his own account by manipulating transaction records on a system used by the exchange to exchange Bitcoins for dollars.

“He created false information that $1 million had been transferred into the account, when in fact it had not been,” the police stated.

Police suspect the funds came from Mt Gox users’ accounts, according to a report by the Japanese newspaper Yomiuri Shimbun, which cited unnamed police sources.

Missing Bitcoins

The sum is a small fraction of the lost Bitcoins, most belonging to the exchange’s clients, which Mt Gox said had either been lost or stolen by hackers. The exchange said at the time that because of accounting lapses it could not be certain what had happened or verify how many Bitcoins it had had to begin with.

Mt Gox later recovered 200,000 of the missing Bitcoins from an “old format” digital wallet dating from 2011.

Karpeles, who steered the company from its origins as a platform for trading cards related to the game Magic: The Gathering, has apologised for “weaknesses in the system” but denied fraud was involved.

On Friday night, soon before his arrest, Karpeles said the police’s accusations were “false” and that he would “of course deny” them, according to The Wall Street Journal. The newspaper said it had received the messages from Karpeles in response to Japanese media reports saying he would soon be arrested.

A lawyer representing Karpeles denied his client had done anything illegal, according to a Kyodo News report.

Karpeles has not yet been formally charged, under a Japanese law that permits police to detain suspects for several weeks before deciding whether to bring charges.

The arrest is not the first indication that fraud may have contributed to Mt Gox’s bankruptcy. After the exchange’s collapse, former employees accused Karpeles of routinely making use of funds from client accounts to cover the company’s operating costs.

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