Former Mt. Gox Bitcoin Bigwig Is Found Guilty, Won't Likely Do Time

   2019-03-15 00:03

TOKYO—The former chief of what was once the world’s largest bitcoin exchange was found guilty of producing illegal records Friday but was cleared on other charges and given a suspended sentence, meaning he probably won’t have to serve prison time.

The ruling by the Tokyo District Court came five years after the Mt. Gox exchange run by Mark Karpelès collapsed in February 2014 after losing 850,000 bitcoins then valued at around $470 million.



Mr. Karpelès wasn’t charged over the loss of the bitcoins. A U.S. indictment unsealed in July 2017 alleged that a Russian citizen named Alexander Vinnik obtained funds from a hack of Mt. Gox and laundered them through online exchanges. A lawyer for Mr. Vinnik has denied the charges.

Prosecutors said Mr. Karpelès wrongfully spent ¥340 million ($3 million) of customers’ money for his personal use and altered Mt. Gox’s books to inflate the amount of dollars and bitcoins held by customers. They sought a 10-year sentence.

The court found Mr. Karpelès guilty of illegally producing electronic records in connection with Mt. Gox’s books, but he was found not guilty of embezzlement and aggravated breach of trust. He was given a sentence of two years and six months, suspended for four years. That means if he stays on good behavior over the next four years, he won’t have to serve time in prison.

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Mr. Karpelès, a French national, denied all wrongdoing in the criminal case, while saying he regretted he was unable to prevent customers’ losses.

Mr. Karpelès’s lawyers argued that he was scapegoated by Japanese authorities who were unable to find the Mt. Gox hackers or identify the operation targeted by U.S. authorities. Mt. Gox “did not collapse because of the defendant’s wrongdoing. On the contrary, the defendant was trying his hardest every day to prevent its collapse,” defense lawyers wrote in their final argument to the court.

Mr. Karpelès was arrested in August 2015 and spent nearly a year in jail maintaining his innocence until he was released pending trial.

The long detention of Mr. Karpelès has some parallel to the case of Nissan Motor Co.’s former Chairman Carlos Ghosn, also a French citizen, who was held in jail for 3½ months after denying charges of financial misconduct. Mr. Ghosn was released March 6 pending trial.

A fan of Japanese anime, Mr. Karpelès traveled to Japan in 2009 with his cat and purchased control of Mt. Gox, which was originally started as a trading platform for playing cards, in 2011. It was soon handling the world’s biggest volume of bitcoin trading, but it was forced to file for bankruptcy protection in February 2014. Shortly afterward, Mr. Karpelès said he located 200,000 of the 850,000 bitcoins that had gone missing.

In April 2014, a Tokyo court ordered the company to be liquidated. Nearly 25,000 people around the world filed claims.

Initially, it seemed the creditors would get only a fraction of their money back. But in the years after Mt. Gox’s collapse, bitcoin surged in value. Even after a plunge over the past year, one bitcoin is still trading for nearly $4,000, or roughly eight times the level five years ago.

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In an unusual move, the Tokyo District Court in June 2018 halted the liquidation and started new bankruptcy proceedings. Previously, Mt. Gox’s former customers had been limited to getting back the yen value of the bitcoins they owned based on the price of bitcoin in April 2014. The court’s move meant they might get back some bitcoins instead, which would likely be worth more.

The court’s revised bankruptcy plan also prevented Mr. Karpelès from cashing in on the remaining bitcoins at Mt. Gox. Under the earlier liquidation plan, Mr. Karpelès, as the main shareholder of Mt. Gox through a company he owned, could have been in line to receive hundreds of millions of dollars, creditors had calculated.

Nobuaki Kobayashi, the court-appointed trustee of the bankruptcy proceedings, has sold nearly a third of the remaining 200,000 bitcoins to lock in some of the cryptocurrency’s gains, generating nearly ¥70 billion ($626 million) by September 2018. The trustee is scheduled to submit his plan on how to distribute assets among creditors by April 26 for court approval.

Write to Kosaku Narioka at kosaku.narioka@wsj.com and Takashi Mochizuki at takashi.mochizuki@wsj.com


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