Former Mt. Gox CEO could face 10 years behind bars in embezzlement case

Prosecutors are gunning for a lengthy prison sentence. Mark Karpeles has denied stealing investor funds.
Written by Charlie Osborne, Contributing Writer

Prosecutors are pursuing a sentence of ten years in prison for the former chief executive of Mt. Gox, Mark Karpeles, over alleged embezzlement.

Karpeles, who is facing charges of embezzlement and the alleged theft of cryptocurrency belonging to investors worth millions of dollars, has always denied any wrongdoing.

The Mt. Gox cryptocurrency exchange closed its doors abruptly and without warning in 2014, leaving investors stunned and without access to Bitcoin (BTC) funds stored by the platform.

At least 850,000 BTC went down with the ship, which Tokyo-based Mt. Gox claimed had been stolen by external attackers. 200,000 BTC was then 'found' in an old wallet before the exchange filed for bankruptcy.

Not everyone, however, believed the tale of the cyberattack and while it may be that external threat actors did steal the bulk of the missing money, Karpeles was later arrested by Japanese law enforcement.

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Local authorities have since laid charges of embezzlement and fraud at the former executive's door over the misuse of investors' cash for personal gain. Karpeles pleaded not guilty to the charges in 2017.

The case has been ongoing since the closure of Mt. Gox, and according to Japanese outlet Nikkei, law enforcement is hoping to achieve a jail term of ten years should Karpeles be found guilty.

The publication reports that a recent indictment filed with the Tokyo District Court alleges that Karpeles transferred 340 million yen (roughly $3 million) to a personal account in order to purchase furniture, as well as to pursue potential business investments before Mt. Gox closed.

Prosecutors also claim that the former CEO manipulated and inflated Mt. Gox's "cash balance by tampering [with] data in the trading system."

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Karpeles "played a great role in totally destroying the confidence of Bitcoin users," prosecutors added, according to The Mainichi.

Civil Rehabilitation proceedings, which can force loan term changes by lenders to clear bad debt, have now begun. This may allow some former investors to recoup their lost funds, but as the case involves cryptocurrency, proceeding authorities have been tasked with a challenge in ascertaing what is a fair return for investors making a claim.

At the time of the exchange's collapse, Bitcoin was worth roughly $400 - $500. However, since then, the price has skyrocketed.

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Last year, Bitcoin peaked at close to $20,000. Following market fluctuations, at the time of writing, one Bitcoin is worth $3,400.

This is still far higher than BTC valuations at the time trader funds vanished, and so as noted in the announcement (.PDF) of the Civil Rehabilitation launch, regulators may find it appropriate to award more than the fiat equivalent of the Bitcoin in 2014, given its value now.

"The amount of voting rights of Bitcoin creditors for resolutions on the proposed rehabilitation plan is based on the valuation of Bitcoins as at the time of commencement of the Civil Rehabilitation proceedings," the notice says.

Karpeles is required to stay in Japan until the court case reaches its conclusion.

Mt. Gox is not the only Japanese cryptocurrency exchange to become mired in controversy. Earlier this year, $530 million was stolen from Coincheck due to lax security. The exchange was then acquired by Monex which intends to iron out the organization's infrastructure and security problems.

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