The former CEO of collapsed bitcoin exchange Mt. Gox will go on trial in Tokyo next week on charges stemming from the disappearance of hundreds of millions of dollars worth of the virtual currency from its digital vaults.
Frenchman Mark Karpeles — once the high-flying head of the world’s busiest bitcoin trading platform, who reportedly lived in an $11,000-a-month penthouse and spent money lavishly, including on prostitutes — is facing embezzlement and data manipulation charges.
“He is keeping calm as the trial gets underway,” his lawyer Kiichi Iino said, adding that Karpeles, 32, plans to plead innocent.
Karpeles was first arrested in August 2015 and released on bail nearly a year later over allegations he fraudulently manipulated data and pocketed millions worth of bitcoins.
Mt. Gox, which claimed it once hosted around 80 percent of global bitcoin trading, closed in 2014 after admitting that 850,000 coins — worth around $480 million at the time — had disappeared from its vaults.
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 computers.
Tokyo-based Mt. Gox filed for bankruptcy protection soon after the bitcoins went missing, leaving a trail of angry investors seeking answers and denting the virtual currency’s reputation.
Karpeles, who said he is working as an IT consultant, is active on social media and has commented on issues concerning bitcoin, but not on the details of his criminal case.
“The charges only cover a subset of the issues which were happening at Mt. Gox, so I don’t expect that we will find out most of the information we want to know,” said Kolin Burges, a British investor who said he lost several hundred bitcoins in the exchange’s collapse.
“I’ve not had any back yet but hopefully, eventually all the creditors will get a small percentage of their money back from the bankruptcy distribution,” he said.
Around the time of his 2015 arrest, Karpeles’ mother told the Yomiuri Shimbun, Japan’s top-selling daily, that her son was a “genius” who learned computer languages at age 3 and had started making simple programs by the time he was 5.
In 2006, Karpeles 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 around 2009 and later got involved with the bitcoin exchange.
In the wake of the Mt. Gox scandal, Japan passed a bill stipulating that all virtual currency exchanges must be regulated by the Financial Services Agency.
Virtual currencies are generated by complex chains of interactions among a huge network of computers around the world, and are not backed by any government or central bank, unlike traditional currencies.
Bitcoin, however, has taken a blow from several hacking incidents, including one last year in which Bitfinex — a major Hong Kong-based exchange — suspended trading after $65 million worth of the virtual currency was stolen.
Despite the demise of Mt. Gox and concerns about security, bitcoin and hundreds of rival digital currencies are becoming increasingly popular and accepted by merchants worldwide.
Bitcoin remains the most popular. Its market value has ballooned to more than $42.9 billion, according to the website coinmarketcap.com.
The unit has experienced wild volatility during its short life, soaring from just a few U.S. cents to around $2,500 now, more than double its value just a few months ago.
Backers say virtual currencies offer an efficient and anonymous way to store and transfer funds online.
Critics argue that the lack of legal framework governing the currency, the opaque way it is traded and its volatility make it dangerous.
Bitcoin’s reputation was damaged when U.S. authorities seized funds as part of an investigation into Silk Road, an online black market that was operating in the darknet.