Japanese police arrest Mt. Gox CEO Mark Karpeles over fraud

Japanese police arrest Mt. Gox CEO Mark Karpeles over fraudJapanese police arrest Mt. Gox CEO Mark Karpeles over fraudMark Karpeles, the CEO of the now-defunct Mt. Gox Bitcoin exchange, has been arrested by Japanese police for alleged fraud involving the Tokyo-based business.

The Wall Street Journal reported that an official said police allege Karpeles manipulated Mt. Gox’s computer system to inflate its assets.

The newspaper said Japanese media broadcast footage of Karpeles being led by police officers from his Tokyo apartment before 7 a.m. Saturday local time. An official knowledgeable about the investigation said authorities allege Karpeles manipulated a company account balance and used it to counter customer orders. Some of the Bitcoins Karpeles claimed were lost may not have existed, the official said.

The Wall Street Journal said Karpeles was not immediately available for comment Saturday. On Friday, following a local media report that he was going to be arrested, Karpeles said in instant messages to the newspaper that the allegations were “false” and he would “of course deny” them. His attorney did not answer calls from the Wall Street Journal for comment.

The newspaper reported that Karpeles, as of the article’s publication online Friday evening EST, had not been formally charged. In Japan, suspects can be held for up to 23 days without a formal charge or the chance of bail.

When troubles at Mt. Gox emerged early last year, it led to international recrimination among Bitcoin users and exchanges. Furious customers flew to Mt. Gox’s headquarters in Tokyo for a sit-in, noted the Wall Street Journal.

Karpeles has insisted that Bitcoins vanished from the exchange because of cyber-attacks, but, as the Yomiuri Shimbun reported, Tokyo’s Metropolitan Police Department has concluded that 99 percent of Mt. Gox’s Bitcoins have disappeared due to fraudulent operation of the system.

The Japanese newspaper said that according to the police, Karpeles is believed to have falsified data of his account opened in the exchange’s transaction system twice in February 2013 and cushioned his cash balance by $1 million.

The Yomiuri Shimbun reported that police believe about 650,000 BTC disappeared from Mt. Gox because Karpeles had lost the large amount of money after transferring clients’ cash and Bitcoins to his account. Based on information from sources close to the exchange, the police have specified Karpeles was the only one able to manipulate the data.

According to the police, Karpeles allegedly manipulated transactions to show his balance higher. As a result, cash balance of exchange clients dropped, but clients could not detect the manipulation as the amounts displayed on Mt. Gox’s website did not change.

Mt. Gox is in the midst of liquidation. California-based Bitcoin exchange Kraken was chosen last fall to support the investigation into Mt. Gox and the company’s liquidation. A spokeswoman at Payward Inc., which operates Kraken, declined to comment to the Wall Street Journal on the new allegations Karpeles faces.

Image Source