Bitcoin kingpin charged with fraud

Japan indicts Mt Gox exchange chief over loss of millions in cyber-money

TOKYO • Japanese prosecutors said yesterday that they had charged the head of collapsed bitcoin exchange Mt Gox with embezzlement, amid fraud allegations over the disappearance of hundreds of millions of dollars worth of the virtual currency.

The indictment of France-born Mark Karpeles, 30, comes after he was taken into police custody in Tokyo last month over the affair. He remains in custody, but has the option of petitioning the court for release pending trial.

The charges are tied to allegations that he falsified data, while another relates to claims that he pocketed millions of dollars in bitcoin deposits.

Mark Karpeles is accused of falsifying data and pocketing millions in bitcoin deposits. The Mt Gox exchange that he headed - reportedly the largest in the world - closed down last year after millions in bitcoin deposits disappeared from its digital vaults. PHOTO: AGENCE FRANCE-PRESSE

The case presents a complex challenge to the Japanese police, as financial watchdogs the world over struggle to work out how to regulate digital money.

He has been held without formal charge for six weeks, as allowed under Japanese law.

He was first taken into custody over claims that he fraudulently tinkered with data and transferred funds to other firms controlled by him dozens of times between 2011 and 2013.

He was later rearrested for allegedly pocketing about 321 million yen (S$3.7 million) worth of bitcoin deposits, extending an initial three-week incarceration during which time the police probably grilled him over the incident.

Bitcoins - generated by complex chains of interactions across a huge network of computers worldwide - are not backed by any government or central bank, unlike traditional currencies.

Tokyo-based Mt Gox closed down last year after admitting that 850,000 coins - worth around US$480 million (S$679 million) at the time, or US$387 million at current exchange rates - had disappeared from its digital vaults.

The exchange - which once said that it handled around 80 per cent of the world's bitcoin transactions - filed for bankruptcy protection soon after the cyber-money went missing, leaving a trail of angry investors demanding answers.

The company initially said there was a bug in the software underpinning bitcoins that allowed hackers to pilfer them.

Karpeles later claimed that he had found some 200,000 of the lost coins in a "cold wallet" - a storage device, such as a memory stick, that is not connected to other computers.

However, the whereabouts of the money and his involvement appear far from solved.

Bitcoin investor Kim Nilsson said: "I'm happy that the police have made breakthroughs in investigating the missing fiat money, but it would be unsatisfying if - after all this time - all we get is a conviction for manipulated records and embezzlement amounting to only a fraction of all the money that people lost."

The case presents a complex challenge to the Japanese police, as financial watchdogs the world over struggle to work out how to regulate digital money, which started to appear around 2009.

Backers say virtual currencies provide an efficient and anonymous way to store and transfer funds online. But critics argue that the lack of a legal framework of governance for the currency, the opaque way it is traded and its volatility make it dangerous.


A version of this article appeared in the print edition of The Straits Times on September 12, 2015, with the headline 'Bitcoin kingpin charged with fraud'. Print Edition | Subscribe