Japanese prosecutors charge Karpeles with embezzling 321 million yen ($2.66 million) by transferring clients’ funds deposited at Mt.Gox’s bank account to other accounts. Sources say the money was spent on buying computer software development rights and an expensive custom-built bed. Karpeles is suspected of falsifying data on the outstanding balance of the exchange. Karpeles has denied the charges, telling investigators the data falsification was done for the company and he had intended to pay back the money. He has been held without formal charge for six weeks, as allowed under Japanese law.
Rolling Stone publishes a profile of Karpeles and Mt. Gox, titled The Rise and Fall of a Bitcoin Kingpin. On stealing Gameboys and mobile phones as a teenager by hacking shopping websites:
A lot of people respected me for that. I did feel more important, in a way. If I need something, I press a button and I get it.
On what he felt like when he realized $650 million in bitcoins were gone:
It really felt unreal. I don’t know how to describe that. When you get a hospital operation without any anesthetic, it hurts at first, but at some point the pain reaches a point where you don’t feel anything anymore.
After three weeks with no formal charges Japanese police says they will issue a fresh arrest warrant accusing him of pocketing $2.6 million worth of Bitcoin deposits, which was mainly spent on buying software rights, but also includes $48,000 for a luxury bed. Police are also reportedly interested in questioning Karpeles about the disappearance of 850,000 coins worth 48 billion yen last year. They were valued at around $480 million at the time of the disappearance, and $387 million at current exchange rates.
Karpeles is arrested at his home by Japanese police who say he accessed a computer system and falsified data on its outstanding balance. Police say Karpeles protested at his arrest and said he will not sign any documents until his lawyer arrives. The Tokyo Metropolitan Police say they believe Karpeles had manipulated transaction records on a computer system that Mt. Gox used to swap Bitcoins for dollars, and had “unjustly inflated the balance” of an account held under his name:
He created false information that $1 million had been transferred into the account, when in fact it had not been.
Karpeles has not been formally charged. Police can detain him for up to 23 days before charging him.
Karpeles agrees to an interview with PC World on the condition that he will not discuss other than in general terms what happened at the company, the police investigation into it and other litigation involving him. He says Tibanne now has 13 employees and still does Web and server hosting as well as Web and mobile application development. Tibanne’s graphics editing software subsidiary, Shade3D, has about 10 staff.
I’ve been trying to keep Tibanne and Shade3D running well so we can maybe assist with the Mt. Gox bankruptcy…I cannot apologize enough for what happened. While I believe I did everything I could do to prevent this from happening, it still happened. Right now, I’m trying to do my best to cooperate with the bankruptcy process and the ongoing investigation.
Karpeles says Bitcoin needs the kind of physical security measures that are used to protect gold, including 24-hour operation centers manned by guards and accessed only through hardware tokens, with staff who have undergone extensive background checks.
[Without major investments in security infrastructure] most likely we’re going to see more companies getting hacked, or bitcoin being stolen.
Karpeles is interviewed by Tokyo-based journalist, Nathalie Stucky. On whether the Japanese police have enough knowledge to investigate Mt. Gox:
I think that those who think that the Japanese police is “incapable” slightly underestimate them if they think that they are not advancing. I don’t have all the details, but I have more details than usual people. So I have seen things that others won’t ever see. And based on that, I think the Japanese police are quite efficient. But I totally support the idea that several people start their own investigations. It is generally a good idea to have different people having different way of seeing the same problem. The police does not report into details on what they are doing, that’s why it might seem like they are not doing anything but they are actually working on this. As for understanding the situation, I think I gave them enough training so that they can now go on. It is a recurrent fact that the Japanese police arrest innocents and make them confess that they did the thing. So, I simply hope that they won’t do anything insane. That is something that is not guaranteed though.
A question he wishes people would ask:
I wished that someone had asked me how I’m doing. I think everyone sees me as “Mr. Mt Gox,” and not enough like a human being, or just a person. Although I don’t always agree with what human beings think, or the way they react, it’s sometimes disappointing, everyone needs human interaction.
The WSJ interviews Karpeles at his home on the top floor of a 33-story building in Tokyo’s Meguro neighborhood. It is first media interview since a news conference when Mt. Gox filed for bankruptcy in February.
All I can say is I am deeply sorry. But I did what I could, and I swear I haven’t been doing anything too luxurious.
We had some cases where a stranger sneaked in and took things away. We also have at least one former employee stealing the company’s data.
On what he had done wrong:
Management. I was too busy and couldn’t lay out an adequate corporate structure. I wish I had five of me, as I was too busy with meetings with banks, lawyers and business partners. That was all painful, I wish I had more time to do engineer-type of work. We tried [to hire experienced professionals] but we didn’t have money and also often they turned us down.
Asked when he found out the Bitcoins were gone:
I always worried about ‘What if all the bitcoins were gone?’ Since that actually happened, I have gone through many sleepless nights. Scared, frustrated and angry—-so many emotions were occupying my mind.
He wishes someone should buy the exchange and says that Bitcoin has the potential to change the world but is too easy to use for illegal activities.
The original founder of the site explains his relationship with Karpeles in an interview with Ars Technica.
I met [Karpeles] I think on bitcointalk.org. The Bitcoin community was very small at that time and I asked him to do some software development for me. He did that task and I was looking for someone else to run Mt. Gox so I could focus on other things. We discussed the possibility of him buying Mt. Gox from me and I ended up selling it to him in 2011.
I have not had any involvement with Mt. Gox other than as a minority shareholder since early 2011 when I sold it to Mark Karpeles, whom I have never even met in person,” he said. “It is my understanding that Mark also rewrote the entire codebase sometime in 2011 shortly after the sale and none of my code remained in use. Aside from the sale, I have never received any distributions or profits from Mark
McCaleb also tells Ars he lost around $50,000 (held in dollars, not bitcoins) when the exchange closed.
According to a statement and court filings, U.S. and Canadian customers have agreed to settle their proposed class action lawsuits by supporting a plan by Sunlot Holdings to buy the exchange and accept their share of bitcoins still held by Mt. Gox. Sunlot plans to buy Mt. Gox for one Bitcoin (less than $500).
The customers will share in a 16.5 percent stake after Mt. Gox is sold to Sunlot, a firm backed by child actor-turned entrepreneur Brock Pierce and venture capitalist William Quigley, and split the 200,000 bitcoins that Mt. Gox said it found after seeking bankruptcy protection. They will also split up to $20 million held by the administrator for Mt. Gox. Jay Edelson, the lead attorney in the U.S. case said:
This is the customers’ best option and the only chance they have for full restitution
The settlement releases Jed McCaleb, and Gonzague Gay-Bouchery, who have committed to help pursue the class action against the remaining defendants: Karpeles, Tibanne, Mizuho Bank Ltd and others.
The Tokyo District Court dismisses an application for civil rehabilitation and appoints an administrator of the company’s assets in place of Karpeles.
Karpeles: There are no prospects for the restart of the business. The dismissal of the application for commencement of a civil rehabilitation procedure will create great inconvenience and concerns to our creditors for which we apologize
The administrator, lawyer Nobuaki Kobayashi, said in a separate statement that the court will probably order the start of bankruptcy proceedings. How the company is treated will be decided by taking into account factors including whether there is any candidate to buy the business, Kobayashi said. Kobayashi also said any investigation of the liability of Karpeles will be conducted as part of the bankruptcy proceedings.
U.S. Bankruptcy Judge Stacey Jernigan orders Karpeles to appear on April 17 in Dallas at the offices of Baker & McKenzie, the law firm that represents Mt. Gox. Last month, Karpeles asked a Dallas court to grant Mt. Gox Chapter 15 bankruptcy protection, in part to put a stop to a class action that had been filed by U.S. customers in Chicago federal court. Under Chapter 15, Mt. Gox must prove at a May 20 hearing that it should be granted such protection from creditors. Judge Jernigan:
If he avails himself of this court, my God, he is going to get himself over here.
A Baker & McKenzie attorney said the company may replace Karpeles as the “foreign representative” of Mt. Gox in the U.S. bankruptcy court.
In response to a motion filed Tuesday 25 March, where Gregory Greene and Joseph Lack ask a U.S. judge to order Karpeles, as CEO of Mt. Gox to go to the U.S. to testify in the U.S. in order to protect domestic creditors, Karpeles proposes to go to Taiwan instead, where he would allow lawyers to question him in person or via video link. The plaintiffs offer to pay all travel expenses. Steven Woodrow, a Colorado-based lawyer for the plaintiffs, said:
Most foreign representatives, from our research, who have availed themselves of the United States courts, are more than willing to come to the United States to justify the relief that they’re seeking,” Woodrow added. “For some reason, Mr. Karpeles seems averse to coming to the United States. His attorneys won’t tell us why.
Hackers take over Karpeles’ Reddit account and personal blog adding a post alleging that the exchange has actually kept at least some of the bitcoins that the company had said were stolen from users.
It’s time that MTGOX got the bitcoin communities wrath instead of [the] Bitcoin Community getting Goxed
“Goxed”– is a term that users use suffer from Mt. Gox’s technical glitches. The hackers also post a 716MB file to Karpeles’ personal website that they said comprised stolen data from Mt. Gox’s servers, which includes an Excel spreadsheet of over a million trades, company balances, admin files and Karpeles’ home address and CV. Forbes reports that the file includes malware and that the personal details of all Mt Gox customers appears to have been put up for sale.
Karpeles appears before Japanese TV news cameras in Tokyo, bowing deeply for several minutes.
In an IRC chat with Fox Business Karpeles says he hasn’t given up:
FB: Is that Crisis Strategy Draft even legit?
MK: more or less. as the name suggests it’s a draft and it’s a bunch of porposals to deal with the issue at hand, not things that are actually planned or done. This said document was not produced by MtGox.
FB: Are you stepping down as CEO and away from gox too? (if you can’t legally disclose, then just say so)
MK: can’t disclose that yet
FB: So you guys are still actively trying to save it though?
MK: we haven’t given up
FB: How much did you lose yourself?
MK: Well technically speaking it’s not “lost” just yet, just temporarily unavailable
Kolin Burges from London travels to Tokyo to find out if he can withdraw his 250 bitcoins from MtGox. He forms a one-man protest outside the Mt. Gox office and asks Karpeles if he will get his Bitcoins back.
After meeting with Karpeles, Ver makes a video statement:
Today I’m at the Mtgox world headquarters in Tokyo Japan. I had a nice chat with MTGOX CEO, Mark Karpeles, about their current situation. He showed me multiple bank statements, as well as letters from banks and lawyers. I’m sure that all the current withdrawal problems at MTGOX are being caused by the traditional banking system, not because of a lack of liquidity at MTGOX.
Karpeles buys Mt. Gox from an unemployed software hacker named Jed McCaleb. Before the site started trading in Bitcoins, it was an online marketplace where people could buy and sell cards for the Magic: The Gathering trading card game. Mt. Gox is short for “Magic: The Gathering Online Exchange” McCaleb, nervous about regulatory scrutiny on bitcoin, wanted rid of the exchange and sold it to Karpeles in for no upfront fee, people with knowledge of the deal said. Karpeles told others he had later paid McCaleb a small fee, calling it “a very good deal”.
Karpeles arrives in his Japan with his cat Tiban and some hard drives. Karpeles first visited Japan for a month in 2007, and posted a blog entry in Japanese saying he was a ‘geek’.
Karpeles Blog: I do computer-related work (a programmer); my goal is world domination.
Mark Marie Robert Karpelès is born in Chenove, in the Burgundy region of France. His mother is Anne Karpelès, a geologist turned realtor.
He writes his first computer program aged 10, the same year he is sent to Collège Prieuré de Binson, a Catholic boarding school two hours north of Dijon.