The Tokyo Metropolitan Police have arrested the CEO of the Mt.Gox bitcoin exchange over the loss of a ‘massive amount’ of the virtual currency.
Update: Japanese police on Saturday, August 1st, 2015, arrested Mark Karpeles, alleging that he manipulated the Mt Gox’’s computer system to increase the balance in an account.
Mr. Karpeles was led by Tokyo Metropolitan Police officers from his apartment before 7 a.m. A police spokesman said Mt Gox CEO is suspected of manipulating his own account at the company by making it appear that $1 million was added to it.
Mark Karpeles, chief executive officer of the collapsed bitcoin exchange Mt. Gox, is facing criminal charges over allegations that he fraudulently manipulated the digital currency system and inflated the bitcoin balance in fake accounts that belonged to the exchange.
Japanese news site Nikkei reported on Thursday that The Tokyo Metropolitan Police is going to file charges of “fraudulently producing and using private electromagnetic records.”
The local police is also going to pursue charges of corporate embezzlement, as it suspects that Mt. Gox CEO misappropriated deposited bitcoins by carrying out cryptocurrency buy orders from bogus accounts.
Last year, Karpeles stated the exchange lost about 650,000 bitcoins and named cyber attacks as a reason for the disappearance of coins. The report notes that the figure is exaggerated and part of bitcoins stolen from the exchange last year may never have existed.
First claims that the theft of bitcoins was an inside attack appeared in March 2014. In January 2015, the Tokyo Metropolitan Police Department found that only 1% of all the missing bitcoins (7,000 bitcoins) were stolen by hackers. The police suggested that the disappearance of remaining coins could result from fraudulent activity by the unknown party which had an access to the system.
According to a report prepared by bitcoin security company Wizsec, most or all of the missing bitcoins were not held by the exchange when it collapsed. The report says the funds in digital currency began disappearing in 2011.
The company discovered the clear difference between the actual holdings of Mt. Gox and the holdings the exchange should have held. Within time, this difference continued growing and by the middle of 2013, there were almost no bitcoins left in the exchange.
In 2014, the company applied for commencement of civil rehabilitation process at the Tokyo District Court, which decided to begin official bankruptcy proceedings in April. Today, there are still hundreds of exchange users who are still waiting to return their bitcoins.
Additional charges could significantly accelerate the process of bankruptcy proceedings and legal actions against Karpeles. If the allegations will be proven, Karpeles is likely to go to jail.
Before its closure, Mt. Gox was the largest digital currency trading platforms in the bitcoin sector, accounting for 70% share of the cryptocurrency market.
There are plenty of people in the bitcoin community that would like to see Mt. Gox CEO brought to responsibility, as the fall of the exchange caused negative publicity for bitcoin. Besides, many consider the collapse of the exchange is even necessary, because its past problems showed it was not ready to keep pace with the spread of virtual currencies.