Former Bitcoin dealer arrested in Japan

The former head of the now defunct Mt.Gox Bitcoin exchange, Mark Karpeles (30), was arrested Saturday by Japanese police on allegations of fraud.

The Agence France Presse news agency reports that the alleged fraud led to the collapse of the exchange and damage to the credibility of Bitcoin as a virtual currency.

Bitcoin is becoming an increasingly used deposit and withdrawal option offered to players by online gambling website operators.

A spokesman for the Tokyo Police said French-born Karpeles was suspected of manipulating data on the exchange’s computer system in 2013 to artificially create about $1 million.

Japanese media reports claimed that local police were also investigating Karpeles’ possible involvement in the 2014 disappearance of nearly $390 million worth of the virtual currency, at current exchange rates.

It was not immediately clear if there would be more charges against Karpeles, who reportedly denied the allegations.

AFP reports that the global virtual currency community was shaken by the shuttering of MtGox, which froze withdrawals in early 2014 because of what the firm said was a technical bug in the software that allowed hackers to pilfer them.

Police are reportedly now investigating suspicions that Karpeles knew details about the missing Bitcoins, which were reportedly transferred to an account controlled by him …without notifying depositors. The Japanese newspaper Yomiuri additionally claimed that police suspect that Karpeles repeatedly transferred clients’ Bitcoins into his own account for speculative trading.

Mt.Gox once boasted of handling around 80 percent of global Bitcoin transactions, but the entity filed for bankruptcy protection soon after the reports of missing Bitcoins. The company admitted that it had lost 850,000 coins worth 48 billion yen ($387 million in today’s money – worth about $480 million at the time of the disappearance.

Karpeles later claimed he had found some 200,000 of the lost Bitcoins in a “cold wallet” — a storage device such as a memory stick that is not connected to other computers.

AFP notes that Karpeles has reportedly refused to travel to the United States, where he has being asked to appear for questioning in connection with MtGox’s collapse.

Launched in 2009 by a mysterious computer guru, Bitcoin offers a largely anonymous payment system and can be stored either virtually or on a user’s hard drive. The virtual currency took off in 2011, reaching highs of around $1,100 a coin in 2013, but has since declined to the present approximately $280 a coin.

The currency was used in the recent $200 million Silk Road bust, in which US enforcement agencies seized Bitcoin funds allegedly used in illegal medicinal drug sales transactions.

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