Disclaimer: I am currently a caretaker of former Bitcoin Tycoon, Mark Karpeles’s two cats. Yes, his pussy manager. Throw the jokes out there. On the assumption that both humans and cats are innocent until proven guilty, I agreed to take on the care of the cats for the time being–despite deadly cat allergies (humble brag). I have been working on a book about Bitcoin, Mt.Gox, and Satoshi Nakamoto for several weeks, during which time I have gotten to know the cats well. I hope it hasn’t effected my judgement. Darkly humored disclaimers aside, it’s clear that Mark Karpeles’s management of Mt.Gox was sloppy and security was poor, this resulted in huge losses for his clients, which is awful.
Does that make him a master criminal? We’re not sure. He claims to have been framed and/or victimized. Maybe it’s true.
The Japanese police arrested Mark Karpeles (30), the CEO of Mt Gox, once the world’s largest bitcoin exchange on 6:40 am Saturday morning. The arrest had been telegraphed in an article by the Nikkei Shimbun a day before the arrest actually took place. In January of this year, Karpeles was also been accused of being the mastermind behind the international Internet black market and drug bazaar known as Silk Road—accusations later to be proven false.
According to the police, Karpeles has allegedly inflated his cash account through improper electronic transfers.
Karpeles’ lawyer told the press that the Frenchman denied any wrongdoing.
The Tokyo Metropolitan Police suspects Karpeles made illegal access to Mt. Gox’s computer system in February 2013, and increased the outstanding balance of his dollars account twice by a total of $1 million.
Karpeles could face for up to 5 years imprisonment or a fine of up to 500,000 yen ($US 4,035).
The police said they would continue to investigate whether Karpeles inflated his bitcoin amounts as well in company accounts. They have also leaked tips to the press suggesting they will re-arrest Karpeles on embezzlement charges after his first 23 days in detention. It’s typical of large-scale Japanese police investigations to arrest a suspect on minor charges, use the 23 days of detention allowed under law to “encourage” a confession and if the suspect refuses to confess, to arrest them again on other charges, and also interrogate them for another 23 days. A suspect is not allowed to have a lawyer present during investigation.
It is said that only Karpeles had access to the computer server or database at the exchange’s operator, for security reasons.
Karpeles told Japan Subculture Research Center on Friday, after major news was reported by Nikkei newspaper about a possible arrest, that he hasn’t committed a crime, but he suspects that someone is trying to have him arrested during his efforts trying to help the Japanese police’s cyber crime unit to find out what happened to the bitcoins that disappeared. Karpeles also expressed a feeling of betrayal in that he had been cooperating with authorities and had asked them to investigate. (恩を仇で返したような気持ち）.
Mt. Gox, once the world’s leading bitcoin exchange, collapsed in February of 2014 after it announced the loss of 850,000 bitcoins, worth about 48 billion yen at the time, Kyodo News reported. Karpeles also found some 200,000 of the lost bitcoins in March of the same year.
Mt. Gox was bought by Karpeles to Jed McCaleb in 2011, after which it doubled customers each month constantly over the year. Japan does not recognize Bitcoin as a currency but as a commodity. Mt. Gox had over 127,000 creditors in more than 100 countries, and Japan had less than 1%.
The CEO was wearing a blue T-shirt that said “Effortless French” at the time of his arrest. Karpeles has suggested that he may have been hacked and framed by outsiders because of his cooperation with the Silk Road investigation.
We reported in the Daily Beast on March 31st this year: Two federal agents with lead roles in the investigation to take down Silk Road, the international Internet black market and drug bazaar, allegedly stole proceeds from the underground site, in the form of bitcoin, and hid their illicit earnings while conducting the investigations.
The Daily Beast has learned that one of the agents also allegedly leaked information to the Silk Road operators about Mark Karpeles, CEO of the now-defunct Mt. Gox (Tokyo), once the world’s largest bitcoin exchange, who had been cooperating with the investigation and the authorities.
The agents also appear to have made an attempt to extort funds from Mt. Gox or do business with it, which Mt. Gox refused to do, before the U.S. government seized $2 million from the company’s U.S. accounts. It is a seizure that now seems more motivated by personal interest, or the rogue agents covering their tracks, than the pursuit of justice.
The latest revelations raise questions about the events leading to the collapse of Mt. Gox and are likely to put a chill on those who might wish to cooperate with government investigations in the future…..