Russian Bitcoin exchange chief arrested in connection to Mt. Gox 'hack'

The Mt. Gox hack which left thousands of investors out of pocket may have connections to Russia.
Written by Charlie Osborne, Contributing Writer
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The plot thickens.

Mt. Gox, once one of the most prominent and popular Bitcoin trading posts online, went offline in 2014 and took at least $375 million in Bitcoin with it.

The Bitcoin exchange then filed for bankruptcy in Japan. Former CEO Mark Karpeles originally blamed the closure on a cyberattack, but Japanese law enforcement suspected otherwise -- arresting the executive who now faces trial for embezzlement and the loss of customer funds.

While Karpeles protests his innocence, should he be found guilty, he faces up to five years in jail.

However, the indictment of a Russian national in the United States may have blown the case even further open.

On Wednesday, the US Department of Justice (DoJ) revealed the arrest of Alexander Vinnik, a 37-year-old Russian national allegedly involved in BTC-e, a Bitcoin exchange platform which exchanged flat currency for cryptocurrency without taking customer information.

Prosecutors say the exchange has also been used for money laundering purposes "and related crimes."

The indictment claims that Vinnik not only owned a number of BTC-e administrator accounts but was also a beneficiary of parent company Canton Business. The Russian man allegedly used his accounts to funnel and launder cash, and in the case of Mt. Gox, funds were received from the "hack" and laundered through different exchanges, including BTC-e and the now defunct Tradehill.

Prosecutors say that Vinnik tried to conceal his activities but links with the proceeds of the Mt. Gox debacle exist.

According to IRS Criminal Investigation chief Don Fort, Vinnik not only laundered currency but also conducted identity theft and facilitated drug trafficking.

"Exchanges like this are not only illegal, but they are a breeding ground for stolen identity refund fraud schemes and other types of tax fraud," Fort said. "When there is no regulation and criminals are left unchecked, this scenario is all too common."

Vinnik is to be charged with operation of an unlicensed money service business, conspiracy to commit money laundering, money laundering, and engaging in unlawful monetary transactions.

If found guilty, Vinnik faces up to 55 years of imprisonment in total, together with a $500,000 fine or twice the value of the property involved in the transaction over the course of three separate charges.

"This office will continue to devote the necessary resources to ensure that money launderers and cyber-criminals are detected, apprehended, and brought to justice wherever and however they use the internet to commit their crimes," said US Attorney Stretch.

At the time of writing, BTC-e is down and traders appear to be locked out of their funds. The firm's official Twitter account says the disruption is due to "unscheduled ongoing maintenance," but it remains to be seen whether the arrest of the Russian national is truly the reason.

See also: US decrees some ethereum trading is bound by securities law

The world of cryptocurrency has taken a beating in recent times. Ethereum (ETH) has been at the heart of a rash of recent attacks taking place at Initial Coin Offerings (ICOs) and due to unpatched wallet vulnerabilities. In total, cyberattackers have been able to steal $7.4 million from CoinDash, over $30 million from wallets, and over $8.4 million from Veritaseum in a matter of weeks.

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