Mt. Gox Former CEO Re-Arrested

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Mt. Gox CEO Mark KarpelesJapanese police have re-arrested the former Mt. Gox CEO Mark Karpeles as their investigation into the disappearance of millions of dollars’ worth of Bitcoin from the now defunct Bitcoin exchange continues. According to local reports, the police believe that they now have adequate evidence to accuse Mark Karpeles of embezzlement. He is accused of misappropriating $2.6 million worth of deposits from the trading accounts of Mt. Gox clients.


Mark Karpeles, 30, had previously been arrested by the Tokyo Metropolitan Police Department on charges of fraudulently manipulating the cryptocurrency system of Mt. Gox and inflating the bitcoin balance in fake accounts; under Japanese law a suspect can be held legally for up to 23 days without any formal charges being laid, hence the need for Mark Karpeles to be re-arrested on a new charge.

The re-arrest will prolong a process that is known informally to the prosecutors and police as shomusen – a “war of attrition” which is waged by investigators who are seeking to obtain a confession from a detainee. Mr Karpelès lawyer has said that his client denied the initial charges and has not confessed under questioning.

Along with a substantial portion of the money alleged to have been used to buy software rights on behalf of Mt. Gox, one of the misappropriation accusations appertains to Mr. Karpeles buying a $48,000 bed that the police say was intended for his own use.

Mark Karpeles lawyer has denied the allegations and has said that the deposits were used for investments in new ventures and the bed was bought as an interior decoration for his house, both of which were meant as marketing tools to advertise the use of bitcoins. The lawyer added that in spite of the long period of detention, the fact that the investigators have only been able to come up with only these few reasons to make their case for misappropriation is evidence that Mr. Karpeles wasn’t involved for his own personal reasons in the disappearance of hundreds of millions of dollars’ worth of bitcoin.

The now defunct, Mt. Gox had initially said that it had lost 750,000 bitcoins belonging to clients and another 100,000 bitcoins of its own. In March 2014, Mr. Karpelès said the company found 200,000 of the bitcoins, leaving the total loss at 650,000 ($400 – 420 million at that time). Mark Karpelès had claimed that the proven corrupted Federal agents – Carl Mark Force IV and Shaun Bridges – were responsible for killing Mt. Gox and they had records of all the transactions that were made between them and the operator of Silk Road, Dread Pirate Roberts. Nevertheless, suspicions of the fraudulent Mt. Gox accounts prompted the investigators to believe that some of the missing bitcoins could be fake.

BitcoinsBefore its shutdown, Mt. Gox was the biggest virtual currency exchange in the industry, handling 70 percent of all Bitcoin transactions. Nearly one year before its shutdown, the company started suspending withdrawals in US currency. After many more suspensions and delays, Mr. Karpeles announced that the company was bankrupt, and the exchange would close in February 2014, leaving most users empty handed. Investigations from the Tokyo police began immediately after the announcement and Mr. Karpeles has remained in Japan since the shutdown, fearing US extradition and criminal charges. During the Silk Road trial the Department of Homeland Security revealed that that had suspected Mark Karpeles of operating the Silk Road online black market just a few months before settling instead on Ross Ulbricht (a.k.a. the “Dread Pirate Roberts”), who was sentenced to life in prison for being the Silk Road Mastermind.