The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
Saumi Mukherjee, EMBA 2015-18, Vinod Gupta School of Management, IIT Kharagpur
Mark Karpeles, the former CEO of the now defunct bitcoin exchange Mt Gox, has been re-arrested on charges of embezzlement. France-born Karpeles, 30, was taken into custody in Tokyo this month over claims he manipulated data to artificially create about $1.0 million (roughly Rs. 6.5 crores) worth of the digital money.
He has been held without formal charges for three weeks, as allowed under Japanese law, but the Yomiuri newspaper said police re-issued a fresh arrest warrant accusing him of pocketing $2.6 million (roughly Rs. 17 crores) worth of Bitcoin deposits. The report, which cited investigators, said the self-described computer geek spent most of that money on buying software rights, but also splashed out about $48,000 (roughly Rs. 31,34,184) for a luxury bed.
Tokyo-based MtGox froze withdrawals in early 2014 and was later shuttered over the missing money, which it said was linked to a bug in the software underpinning Bitcoins that allowed hackers to pilfer them. The exchange – which once boasted it handled around 80 percent of global Bitcoin transactions – filed for bankruptcy protection soon after the cyber-money went missing.
The lost funds represented the equivalent of $480 million. At the time of the bankruptcy filing Mt Gox also said more than $27 million was missing from its Japanese bank accounts.
Karpeles , who had blamed hackers for the loss, later claimed he had found some 200,000 of the lost coins in a “cold wallet” — a storage device, such as a memory stick, that is not connected to other computers.
In an interview with Japan’s top-selling Yomiuri newspaper, Karpeles’ mother said her “genius” son learned computer languages at age three and started making simple programmes of his own two years later. Back in 2006, Karpeles — who reportedly lived in an $11,000-a-month penthouse Tokyo apartment — wrote on his blog that computer crime was “totally contrary to my ethical principles”. But four years later, a Paris court sentenced him in absentia to a year in prison for hacking. He had come to Japan to work for a web development company in 2009 and later got involved with the Bitcoin exchange.
“The Bitcoin case is really an embezzlement case, but embezzlement has to involve a ‘tangible object,'” said Hisashi Sonoda, a criminal law professor at Japan’s Konan University.
He also added “Japanese criminal law treats digital currency as ‘data,’ not what we call ‘tangible object’ in a legal sense.”
Unlike traditional currencies backed by a government or central bank, Bitcoins are generated by complex chains of interactions among a huge network of computers around the planet.
Backers say virtual currencies, which started to appear around 2009, allow for an efficient and anonymous way to store and transfer funds online.
But critics argue the lack of legal framework governing the currency, the opaque way it is traded and its volatility make it dangerous.
This incident leaves trail of unresolved questions- Where the rest of the money has gone? How Karpeles’ involvement will be proved? Were MtGox’s Bitcoin deposits real in the first place? Although investors have called on the firm’s court-appointed administrators to publicize its data so that experts around the world can help analyze what happened at MtGox. But the case presented a complex challenge to Japanese police, as financial watchdogs around the world struggle to work out how to regulate digital money.