Former Bitcoin Exchange Owner Arrested Under Suspicions of Mishandling Deposits

Japanese authorities have arrested the former owner of defunct bitcoin exchange Mt. Gox, Mark Karpeles, on suspicion of misusing customer funds and embezzlement.

The 30 year old French-born was taken into custody on Sunday, following a lengthy investigation into the bankruptcy of the exchange, which saw 65,000 user bitcoins disappear, now worth about $183 million. The police are suspecting him both of manipulating data to create non-existent amounts of currency and of illegally using customer deposits.

Karpeles will be questioned further during the following three weeks, the maximum period of detention period for individuals who haven’t been charged under the Japanese criminal system. But all odds point towards a lengthy legal dispute, as the French businessman reportedly denied all the accusations in front of journalists.

Mt. Gox, founded in 2010, was the largest exchange for the virtually-generated bitcoin currency, handling over 70 per cent of all bitcoin based-transactions around 2013. The exchange unexpectedly closed in February 2014, as it filed for a protected form of bankruptcy that allowed it to seek a buyer. With no one interested in the purchase, the company then filed for liquidation two months later.

A massive scandal erupted when Mt. Gox was forced to tell its customers under liquidation rules that over 850,000 bitcoins deposited by them were missing, and most probably stolen by hackers. At the time, the total amount lost was the equivalent of $480 million. 200,000 of the lost bitcoins were later found on an external drive.

After an extensive investigation into the matter, the Japanese investigators suspect that Karpeles misused customer deposits, sending them to other companies he owned. The sum he embezzled this way would amount to $8.9 million, which is however still a longshot to that of user deposits lost. Karpeles himself denied a couple of days before his arrest rumors of him misusing customer funds, blaming years of continuous hacker activity for the large deficit.

However, Karpeles may be indicted if it is proven that he transferred customer funds without noticing them. Sources in the Japanese media state that Karpeles was aware of certain details regarding the loss of the bitcoins, but chose not to notify depositors about it.

Unfortunately for the damaged users, most of whom are still legally fighting to get their stolen funds back, the virtual currency has devalued at an accelerated rate ever since. Today, the virtual currency values almost a quarter of what it did at the beginning of 2014, just before the Mt. Gox crash.

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