Bit­coin chief ex­ec­u­tive’s ar­rest leaves long trail of unan­swered ques­tions


The ar­rest of MtGox boss Mark Karpe­les has be­gun to shed light on the de­funct Bit­coin ex­change af­ter hun­dreds of mil­lions in U.S. dol­lars in vir­tual cur­rency van­ished from its dig­i­tal vaults last year.

But as de­tails of a lengthy in­ves­ti­ga­tion by Ja­panese po­lice trickle out, at least one cru­cial ques­tion re­mains unan­swered: where is the money?

On Fri­day author­i­ties is­sued a fresh ar­rest war­rant for French­man Karpe­les over claims he stole sev­eral mil­lion U.S. dol­lars from clients, in­clud­ing about US$48,000 al­legedly spent on a lux­ury canopy bed.

Karpe­les, 30, who has re­port­edly de­nied the al­le­ga­tions, was ini­tially taken into cus­tody ear­lier this month and has been held with­out for­mal charges for three weeks, as al­lowed un­der Ja­panese law.

A fresh war­rant re­sets the clock on how long po­lice can hold him and grill the self-de­scribed com­puter geek over Tokyo-based MtGox’s miss­ing Bit­coins.

So far, po­lice have ac­cused Karpe­les of ma­nip­u­lat­ing data and steal­ing sums that amount to just a frac­tion of the 850,000 coins — worth around US$480 mil­lion at the time, or US$387 mil­lion at cur­rent ex­change rates — that dis­ap­peared last year.

MtGox, which once said it han­dled around 80 per­cent of global Bit­coin trans­ac­tions, filed for bank­ruptcy pro­tec­tion soon af­ter the cy­ber-money went miss­ing, leav­ing a trail of an­gry in­vestors call­ing for an­swers.

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

Karpe­les later claimed 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.

But the where­abouts of the money and Karpe­les’ in­volve­ment ap­pear far from solved.

“If there were in­stances of mis­man­age­ment or fraud like this car­ried out by Mark Karpe­les, then he should be held ac­count­able,” Bit­coin in­vestor Kim Nils­son told AFP.

“(But) if these charges against (him) don’t ad­e­quately ex­plain where all the Bit­coin ... money went, then there are still un­re­solved ques­tions, quite pos­si­bly ad­di­tional crimes and crim­i­nals, that must be in­ves­ti­gated fur­ther.”

Real or Fake?

Nils­son also ques­tioned whether MtGox’s Bit­coin de­posits were even real in the first place.

“Did MtGox at any point ac­tu­ally hold the coins in ques­tion, or have there been faked de­posit en­tries merely mak­ing it look that way?” he asked

MtGox re­port­edly kept its own funds and clients’ money in the same bank ac­count.

In an in­ter­view with Ja­pan’s top-selling Yomi­uri news­pa­per, Karpe­les’ mother said her “ge­nius” son learned com­puter lan­guages at age three and started mak­ing sim­ple pro­grammes of his own two years later.

Back in 2006, Karpe­les — who re­port­edly lived in an US$11,000a-month pen­t­house Tokyo apart­ment — wrote on his blog that com­puter crime was “to­tally con­trary to my eth­i­cal prin­ci­ples.”

But four years later, a Paris court sen­tenced him in ab­sen­tia to a year in prison for hack­ing. He had come to Ja­pan to work for a web de­vel­op­ment com­pany in 2009 and later got in­volved with the Bit­coin ex­change.

Tan­gi­ble Ob­ject

In­vestors have called on the firm’s court-ap­pointed ad­min­is­tra­tors to pub­li­cize its data so that ex­perts around the world can help an­a­lyze what hap­pened at MtGox.

But the case pre­sented a com­plex chal­lenge to Ja­panese po­lice, as fi­nan­cial watch­dogs around the world strug­gle to work out how to reg­u­late dig­i­tal money.

Un­like tra­di­tional cur­ren­cies backed by a gov­ern­ment or cen­tral bank, Bit­coins are gen­er­ated by com­plex chains of in­ter­ac­tions among a huge net­work of com­put­ers around the planet.

“The Bit­coin case is re­ally an em­bez­zle­ment case, but em­bez­zle­ment has to in­volve a ‘tan­gi­ble ob­ject,’” said Hisashi Son­oda, a crim­i­nal law pro­fes­sor at Ja­pan’s Ko­nan Univer­sity.

“Ja­panese crim­i­nal law treats dig­i­tal cur­rency as ‘data,’ not what we call ‘tan­gi­ble ob­ject’ in a le­gal sense.”

Back­ers say vir­tual cur­ren­cies, which started to ap­pear around 2009, 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.

Fol­low­ing Karpe­les’ ar­rest, Tokyo vowed to boost dig­i­tal-cur­rency reg­u­la­tions.

Ja­pan’s pe­nal code “is not re­ally catch­ing up with quickly chang­ing busi­ness mod­els,” ham­per­ing author­i­ties’ in­ves­ti­ga­tion, Son­oda said.

“If there was a clause or a fresh law tar­get­ing dig­i­tal cur­rency, that would have been help­ful for in­ves­ti­ga­tors.”


This file pic­ture taken on Feb. 28, 2014 shows Mark Karpe­les, pres­i­dent of trou­bled MtGox Bit­coin changer at a press con­fer­ence in Tokyo.

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