Mark Karpeles, head of the collapsed Mt. Gox bitcoin exchange under arrest in Tokyo, is believed to have manipulated and padded his own cash account by tens of millions of dollars, far more than the $1 million on his arrest warrant, investigative sources alleged Monday.
The French-born Karpeles has admitted he tweaked the amount of a bitcoin account but said it just to test a computer system, the sources claim.
The Metropolitan Police Department searched the 30-year-old’s home Monday afternoon.
Karpeles was arrested Saturday. A series of fraud allegations led to the Tokyo-based exchange’s spectacular collapse last year and hammered the digital currency’s reputation.
Karpeles is suspected of manipulating data on the exchange’s computer system in 2013 to artificially create about $1 million in bitcoins. The police are also investigating his possible involvement in a massive loss of the virtual currency in 2014.
Karpeles, who has denied all allegations against him and maintains his firm’s system was hacked by outside users, said the amount tweaked “was in the range of several thousand yen or several tens of thousands of yen, because it was a test,” according to the sources.
He said he used the account to test-trade the currency with a customer, the sources said.
Meanwhile, he is facing fresh allegations that he misused ¥1.1 billion ($8.9 million) in customer deposits.
He was sent to the Tokyo District Public Prosecutor’s Office Sunday morning for further questioning.
The police suspect that he spent customer deposits worth about ¥1.1 billion.
He is suspected of misusing the funds privately and sending them to his other firms.
The police will probably issue another warrant accusing him of professional embezzlement over the suspected misuse of funds, police sources said.
Karpeles has denied all allegations. His lawyers were not immediately available to comment.
Before his arrest, Karpeles reportedly said that he never misused customers’ funds and he still suspects outside hackers have been stealing bitcoins for years.
The global virtual currency community was shaken by the shuttering of Mt. Gox, which froze withdrawals in early 2014 because of what the firm said was a bug in the software underpinning bitcoins that allowed hackers to pilfer them.
The Mt. Gox exchange — which once boasted of handling around 80 percent of global bitcoin transactions — filed for bankruptcy protection soon after the money went missing, admitting it had lost 850,000 coins worth ¥48 billion ($387 million). They were worth about $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.
Japanese media, citing police, have said investigators suspect Karpeles knew details about the missing bitcoins — which were transferred by his exchange to a separate account — without notifying depositors.
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.
Investors have demanded answers from Karpeles and called on the firm’s court-appointed administrators to publicize its data so that hackers around the world can help analyze what happened at Mt. Gox.
“I knew it. I thought it’s absolutely strange that all of them disappeared only because of hacking,” a 23-year-old investor who saved his bitcoins at the exchange told the Mainichi Shimbun.
