Bitcoin Brew Ha-Ha Boils Over As CEO of Exchange, Mark Karpeles, Is Arrested

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Given its struggle to gain credibility among Internet users in particular and worldwide investors in general, for the nascent digital currency bitcoin, even the most ardent enthusiasts have to admit that recent developments have dealt the currency a blow. Just yesterday, Tokyo Metropolitan police arrested the head of the Tokyo-based bitcoin exchange, Mark Karpeles, on suspicion that he misused the popular online platform for his own gain.

While the authorities are keenly eager to discover the whereabouts of nearly a half-billion dollars in Bitcoins which have inexplicably vanished from its computer systems, they will settle for half-a-loaf now in examining how Karpeles allegedly and illicitly added $1 million to his personal account of the $387 million which is missing- almost 10% of the estimated amount of Bitcoin out there. “He created the false information that $1 million had been transferred into the account, when in fact it had not been,” the police spokesman commented.

Karpeles’ company, Mt. Gox had been under scrutiny for a while as it gained in popularity. But over the past year it has been dogged by persistent allegations of fraud and chicanery and, as a result, a cloud perpetually hung over the clandestine currency. The practice of dipping into client’s accounts had long been suspected at Mt. Gox, though not in the scale of the final, massive disappearance. Added to this was the notion that such an instrument’s secretiveness could only benefit criminals and terrorists. It presaged a decline in confidence in the currency.

Erosion of Faith lead to the downfall of Mt. Gox

It was that steady erosion of faith in the Bitcoin community that ultimately served as the death knell for Mt. Gox, which had been enduring a series of problems, including having accounts frozen by authorities in the United States last year. Without the public backing of Bitcoin believers, Mt. Gox lacked the ability to get the financing it needed, those with knowledge of the discussions say.

Many of Mt. Gox’s woes came shortly after Charlie Shrem, another pioneer in the world of virtual currencies, was arrested by American authorities in New York on money-laundering charges on Jan. 26. He has also since resigned. Shrem’s arrest set off alarm bells at the foundation not only because he was a board member, but because the criminal complaint against him said his co-conspirator had used a “third-party Bitcoin exchange service based in Japan” to park his money. The clear reference to Mt. Gox unnerved the Bitcoin Foundation’s other members, even though prosecutors did not claim any wrongdoing by either Mt. Gox or Karpeles.

Karpeles has expressed remorse over admitted “weaknesses in the system” but denied any illegal behaviour or personal involvement over the disappearance of any client’s assets. The police have not disclosed the origination of the $1 million or what he intended to do with it. Indeed, Karpeles has not been formally charged. But in Japan, a suspect can be held several weeks while charges are built and finally levelled. The amount in question is miniscule given the overall size of the missing funds, but it is how law enforcement proceeds, hoping to parlay the arrest on the smaller amount into a larger indictment.

For now, the arrest and the limited information divulged by Japanese police shed little light on the mystery of the larger amount of missing bitcoins. It appears to be the tip of the iceberg in a lengthy discovery process. Stay tuned to this space for further future developments.


Stan Ward has enjoyed writing for 50 years. Writing has been a comfortable companion to a successful business and teaching career for him. Find him on Google+.

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