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Mt. Gox bitcoin chief Mark Karpeles arrested in Japan

Karpeles is accused of tampering with financial records to inflate his bank account by $1 million -- and a former employee has ended his silence over the Mt. Gox debacle.

When Mt. Gox closed, thousands of cryptocurrency investors were left out of pocket. Bitcoin

Former head of the Mt. Gox bitcoin exchange company CEO Mark Karpeles has been arrested in Tokyo on suspicion of financial fraud.

As reported by the Associated Press, the Tokyo Metro Police have arrested the 30-year-old on suspicion of falsifying financial records in the Mt. Gox computer system in order to inflate his own bank account by $1 million.

Karpeles allegedly tampered with the once-dominant bitcoin exchange's systems in 2013, and if found guilty, could face up to five years in prison or a fine of up to 500,000 yen ($4,000).

In February 2014, Mt. Gox shut its doors without warning, leaving upwards of 850,000 bitcoin belonging to traders missing in action.

Originally, the Mt. Gox CEO said the loss of customer funds was caused by a bug which allowed a cyberattacker to filch and spirit away the cryptocurrency. The company later filed for bankruptcy in both Japan and the United States.

However, rumors have emerged questioning the excuse, ranging from the theft being an inside job to the existence of Willy, a bot with an unknown controller which bulk-purchased bitcoins to inflate the price of the virtual currency.

In total, 200,000 Bitcoins were "recovered" from an old-style wallet which the former CEO said remained unnoticed due to its age. However, bitcoin worth over $300 million is still unaccounted for.

Karpeles was arrested and detained on Saturday but is yet to be formally charged.

Japanese news agency Kyodo News said a lawyer acting on Karpeles' behalf denies any wrongdoing.

Over the weekend, Ashley Barr -- also known as Adam Turner -- conducted an 'Ask Me Anything' on Reddit to answer former Mt. Gox investor queries concerning the arrest.

Barr said he was hired by Karpeles in 2011 and was asked to become CEO before being dismissed in 2012.

Barr claims his statement, alongside other former employees, pointed the Tokyo Metro Police in the right direction relating to the former chief's arrest on "embezzlement and illegal manipulation of accounting."

According to the former Mt. Gox employee, the bitcoin exchange post's saga is worse than we thought. Barr said within the AMA when asked to become chief executive he "tried his best at due-diligence," and requested a look-over of the company's financials.

However, Karpeles "wouldn't, or feigned that he would do it later, all while pressuring me to take the role." Nevertheless, Barr and other former employees conducted their own investigation and through estimates and guess-work, ascertained the model and financials of Mt. Gox didn't quite add up. Barr commented:

"The expenditures far exceeded every model we had for income. I confronted Mark about it, told him I couldn't take the role if he couldn't explain this gross incompetence in spending (he was also asking employees other than myself to find investors ... something impossible without knowing the financial status of the company). Around the same time, we learned that Mark only had one bank account, shared with Mt.Gox's customer deposits. That was the nail in the coffin."

While ripping Mt. Gox's corporate innards open, Barr attempted to be fair in his portrayal of the former CEO. Barr said:

"Mark was definitely in over his head [..] and didn't have the logic/communicative skills to know how to ask for help. He desperately needed it, but didn't even know it. It was incredibly frustrating.

All in all, I felt Mt.Gox was an RPG to Mark, as he didn't quite grasp the reality that the money being in deposited into his bank account meant more to other people than just numbers on his screen."

This story originally posted as "Mt. Gox bitcoin exchange CEO Mark Karpeles arrested in Japan" from ZDNet.