Japanese Police to Press Charges Against Mark Karpeles over Mt. Gox Fraudulent System Manipulation

The Tokyo Metropolitan Police Department is building a case against Mt. Gox’s former founder and CEO Mark Karpeles for fraudulent system manipulation leading to the exchange’s collapse in early 2014.

The police will press charges against Karpeles, who is suspected of fraudulently manipulating the cryptocurrency system and inflating the bitcoin balance of fake accounts, reported local news outlet Nikkei on July 31.

An official source connected to the investigation told the news service that the police are also looking to pursue charges of corporate embezzlement as the police suspect that Karpeles may have misappropriated actual bitcoins deposited by users.

In February 2014, Mt. Gox suspended trading, closed its website and exchange service, and filed for bankruptcy protection in Tokyo. In April, the company began liquidation proceedings.

Mt. Gox announced it had lost almost 750,000 of its customers’ bitcoins, and around 100,000 of its own bitcoins, totaling around 7% of all bitcoins, and worth around US$473 million near the time of the filing.

In March, 200,000 bitcoins were found “in an old wallet from 2011” bringing down the number of bitcoins the firm lost to 650,000 BTC.

In a press conference announcing Mt. Gox’ collapse, Karpeles said that it was likely external cyber attacks that were responsible for the disappearance of the bitcoins.

Given these new information provided by the police, it is now very likely that a portion of the bitcoins previously considered missing were actually fake.

While police investigations are still ongoing, Wizsec, a Tokyo-based bitcoin security firm, found in April that Mt. Gox’ missing bitcoins were stolen from the exchange over a period of time beginning in 2011, implying that Mt. Gox had been operating as a fractional reserve system.

“Mt. Gox was technically insolvent for years (knowingly or not), and was practically depleted of bitcoins by 2013,” the report says.

The news comes shortly after the completion of a bankruptcy claims process that ended earlier this week.

The online process, overseen by bankruptcy trustee Nobuaki Kobayashi and bitcoin exchange Kraken, was created to cater for the majority of Mt. Gox creditors who live outside Japan.

Image credit: Kiyoshi Ota, Bloomberg.