Bit­coin ex­change CEO ma­nip­u­lated data dozens of times, Ja­pan news­pa­per claims


Mark Karpe­les, the head of de­funct bit­coin ex­change Mt. Gox, ma­nip­u­lated its com­puter sys­tem at least 30 times over a cou­ple of years, a re­port said Mon­day, as Tokyo promised greater ef­forts to reg­u­late the dig­i­tal cur­rency.

The fresh al­le­ga­tion against France-born Karpe­les, 30, fol­lows his ar­rest Satur­day by Tokyo po­lice, more than a year af­ter the once-dom­i­nant ex­change col­lapsed in the wake of fraud al­le­ga­tions.

Cit­ing in­ves­ti­ga­tors, Ja­pan’s top-selling Yomi­uri news­pa­per said Mon­day that Karpe­les fraud­u­lently tin­kered with data and trans­ferred funds to other firms con­trolled by him dozens of times be­tween 2011 and 2013.

Po­lice are ques­tion­ing Karpe­les about his al­leged spend­ing of cus­tomer de­posits worth about 1.1 bil­lion yen (US$8.9 mil­lion), ac­cord­ing to public broad­caster NHK and the Yomi­uri.

Of­fi­cially, Karpe­les was ar­rested for al­legedly ma­nip­u­lat­ing data in 2013 to ar­ti­fi­cially cre­ate about US$1 mil­lion in bit­coins.

But po­lice were also in­ves­ti­gat­ing his pos­si­ble in­volve­ment in the mas­sive loss of hun­dreds of mil­lions of U.S. dol­lars worth of the vir­tual cur­rency last year, lo­cal media have said.

In Ja­pan po­lice can hold a sus­pect with­out charge for up to three weeks, dur­ing which time they may carry out in­tense in­ter­ro­ga­tions in an at­tempt to ex­tract a con­fes­sion. Karpe­les is cur­rently in po­lice cus­tody.

In re­sponse to the ar­rest, Tokyo on Mon­day said it would boost ef­forts to reg­u­late the crypto-cur­rency in co­or­di­na­tion with other G-7 coun­tries.

“With re­spect to vir­tual cur­ren­cies such as bit­coin, we have gath­ered in­for­ma­tion and dis­cussed mea­sures” to reg­u­late it, top gov­ern­ment spokesman Yoshi­hide Suga told a reg­u­lar press brief­ing.

“At the G-7 sum­mit, it was re­quested that each coun­try in­tro­duce reg­u­la­tions from the view­point of mea­sures to stop ter­ror­ism fi­nanc­ing and money-laun­der­ing.”

Reg­u­la­tors have scram­bled to re­spond to the use of bit­coins, with some call­ing for cau­tion un­til rules are de­vel­oped to stop them be­ing abused.

Bit­coins are gen­er­ated by com­plex chains of in­ter­ac­tions among a huge net­work of com­put­ers around the planet, and are not backed by any gov­ern­ment or cen­tral bank, un­like tra­di­tional cur­ren­cies.

Back­ers say vir­tual cur­ren­cies al­low for an ef­fi­cient and anony­mous way to store and trans­fer funds online.

But crit­ics ar­gue the lack of le­gal frame­work gov­ern­ing the cur­rency, the opaque way it is traded and its volatil­ity make it dan­ger­ous.

The global vir­tual cur­rency com­mu­nity was shaken by the shut­ter­ing of Mt. Gox, which froze with­drawals early last year be­cause of what the firm said was a bug in the soft­ware un­der­pin­ning bit­coins that al­lowed hack­ers to pil­fer them.

The ex­change — which once boasted of han­dling around 80 per­cent of global bit­coin trans­ac­tions — filed for bank­ruptcy pro­tec­tion soon af­ter the cy­ber-money went miss­ing.

It ad­mit­ted los­ing 850,000 coins worth 48 bil­lion yen (US$387 mil­lion at cur­rent ex­change rates). They were worth about US$480 mil­lion at the time of the dis­ap­pear­ance.

Karpe­les later said he had found some 200,000 of the lost bit­coins in a “cold wal­let” — a stor­age de­vice such as a mem­ory stick that is not con­nected to other com­put­ers.

Bit­coin’s rep­u­ta­tion was also dam­aged when U.S. author­i­ties seized funds as part of an in­ves­ti­ga­tion into the online black mar­ket Silk Road.


Ja­panese po­lice ar­rest Mark Karpe­les, the Mt. Gox CEO, in Tokyo on Satur­day, Aug. 1. Karpe­les was ar­rested on sus­pi­cion of in­flat­ing his cash ac­count by US$1 mil­lion.

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