National / Crime & Legal

Mt. Gox bitcoin exchange founder Mark Karpeles gets suspended term for falsifying data but is cleared of embezzlement

by Magdalena Osumi and Ryusei Takahashi

Staff Writers

Mark Karpeles, the former head of Mt. Gox — a bitcoin exchange that went bankrupt in 2014 — was found guilty of data manipulation by the Tokyo District Court on Friday and handed a prison sentence of 2½ years that will be suspended for four years.

He was found not guilty on a separate charge of embezzling millions of dollars through customer accounts.

Karpeles, a 33-year-old Frenchman, was the head of Mt. Gox when the firm filed for bankruptcy protection in 2014 after 850,000 bitcoins — worth an estimated ¥48 billion at the time — disappeared from its digital vaults.

Karpeles was arrested in 2015 and accused of embezzling a total of ¥341 million belonging to customers that was kept in a Mt. Gox account. He was alleged to have transferred the money to his own account and to have used the money to live a lavish lifestyle.

However the court found that Karpeles transferred roughly $33.5 million to a bank account operated by a bitcoin exchange based in Dallas across 21 transactions made between February and September 2013. He used his personal computer and covered his tracks by falsifying company records.

In Friday’s ruling, the court said the issue wasn’t that Karpeles transferred money but that he acted against the company’s interests and beyond his authority when he manipulated company records to conceal the transactions.

Prosecutors had sought a 10-year prison sentence, but the court rejected some aspects of their case in handing down the lighter term.

Among the issues in question was Karpeles’ decision to use about ¥315 million of the allegedly embezzled money to purchase a 3D printer business, which prosecutors said was unnecessary for Mt. Gox. The court concluded, however, that Mt. Gox used that money to acquire the business as a valuable and a potentially profitable asset, calling the decision reasonable.

The court also ruled that it was not possible to determine that Karpeles embezzled funds from Mt. Gox clients because the company did not have a proper accounting system in place for when its executives borrowed money from the company, a common arrangement in small or medium-sized firms or privately owned businesses without accounting units.

Presiding Judge Tomoyuki Nakayama said that data manipulation has led to the loss of credibility for cryptocurrency exchange services given the large amount of money involved.

The court said that given Karpeles’ expertise in IT engineering and his position of authority, the misuse of the information he possessed was not justifiable.

“The defendant’s criminal responsibility cannot be taken lightly,” Nakayama said.

But the court decided to suspend the sentence given that Karpeles had no prior criminal record.

Throughout the trial, Karpeles maintained his innocence, blaming the financial loss on an external hacking attack.

“I swear to god that I am innocent,” he said in Japanese to a panel of judges at a hearing when his trial started in 2017.

He apologized to customers for the company’s bankruptcy but denied allegations of data manipulation or embezzlement.

Karpeles later recovered about 200,000 of the lost bitcoins in a storage device.

At one point, Mt. Gox claimed that it was handling 80 percent of the world’s bitcoin transactions. In the wake of the company’s shutdown in 2014, angry investors began to question the security of cryptocurrencies in general.