Mark Karpeles, CEO of failed Bitcoin exchange Mt. Gox, is set to go on trial this week on charges of embezzlement and data manipulation. The trial begins in Tokyo on Tuesday (local time).
The trial will examine 32 year-old Karpeles’ lifestyle in the time preceding Mt. Gox’s February 2014 collapse. Prosecutors claim the CEO used company funds to live a luxury lifestyle in Tokyo, and manipulated data to defraud Mt. Gox customers and investors. Even employees who worked in the Gox office claim they were stunned to discover the company’s bitcoin wallets were empty.
Karpeles, a French national, has already spent a year in custody without trial. Police first arrested him in August 2015 and continued to re-arrest him after the time maximum expired. He was finally released on bail a year later.
According to news agency AFP, he intends to plead not guilty. However it’s important to note that Japan’s courts have a notoriously high conviction rate — over 99 percent.
The charges against Karpeles cover only a small number of the events at Gox before 2014, so large swathes of the mystery will remain no matter what the result.
Few are expecting a speedy verdict, with some predicting it could drag on for a month or more.
The Long Running Gox Saga
It’s the latest installment in one of Bitcoin’s largest and longest-running dramas. Much of what actually happened at Mt. Gox (and when) remains shrouded in mystery, but at some stage in its history a thief relieved the exchange of 850,000 BTC.
Karpeles later “found” over 200,000 in a cold wallet (sometimes rumored to be his personal funds) which took the total lost to under 650,000. Ironically, bitcoin’s 2017 price surge raised the possibility that Mt. Gox could again be solvent, even with only a third of its former holdings.
Gox was one of the first exchanges to trade bitcoin and fiat currency. For a while it was also the largest, moving millions of dollars and processing thousands of trades. Entrepreneur Jed McCaleb originally launched the company as a trading card (later bitcoin) exchange in 2010. In 2011 he offered to sell it to Karpeles — but in April that year, shortly after taking over, the new CEO noticed 80,000 was missing from the balance. McCaleb allegedly assured him he could make up the loss through bitcoin price increases, additional investment and/or by buying more BTC with the company’s USD balances.
Hacks, glitches and U.S. regulatory troubles chipped away at Gox and would have damaged its long-term viability even without the BTC loss. However, at some point between 2011 and February 2014, someone drained the exchange of everything that remained. Japanese media have at times reported the theft was an “inside job”.
Gox Creditors Still Angry at Karpeles and Delays
Creditors are still waiting for a result of any kind. Kraken has overseen the claims process for the past couple of years, but even that company’s management has expressed frustration at the delays. The bankruptcy trustee announced whether claims had been approved or denied in May 2016.
Many former customers remain furious at the incompetence and lack of transparency in Gox’s final years. Many had kept large amounts of BTC on the exchange, balances that would be worth six and seven figure USD amounts today. Some of those creditors will be in court to watch the trial this week, hoping not for money but for any revelation of truth or new answer.
A recent creditor’ hearing in Tokyo in September 2016 revealed the Mt. Gox bankruptcy estate held ¥1,054,483,013 JPY ($10.48 million USD) and 202,185 BTC. Trustee Nobuaki Kobayashi confirmed an active lawsuit for $75 million from Coinlab over a dispute involving Gox’s U.S. business is holding up the process.
Will the trial produce a satisfactory result for anyone? Tell us what you think.
Images via Inside Bitcoins, Twitter, Jon Southurst