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Mark Karpelès, former head of Mt. Gox, gets suspended sentence

Last Friday, a two and a half year sentence of imprisonment was given by a Tokyo court to Mark Karpelès, the former head of the bitcoin exchange Mt. Gox, which was one of the earliest and most prosperous cryptocurrency platforms that helped popularize bitcoin in its early days. However, in February 2014, the exchange suspended trading operations, shut down its website, and filed for bankruptcy.

Mark Karpelès, the French entrepreneur who led Mt. Gox to become the world’s top bitcoin exchange during the period between 2010 and 2014, will not do any additional time in jail, provided he maintains good behavior.

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The verdict represented the end of Karpelès’s ordeal which lasted more than five years. He was proven guilty for the falsification of data regarding the mismanagement of the exchange’s trading platforms and wallets and the loss of customers’ assets. However, he was proven innocent of two other charges involving breach of trust and embezzlement. In August 2015, Karpelès was arrested in Japan and detained for a period of almost a year, during which he was interrogated by prosecutors who pressured him via piling up charges against him.

His sentence has been suspended for around four years, which means that he will do no additional time, provided he maintains good behavior.

Critics of the Japanese judicial system argue that Karpelès experience represents a unique case study illustrating the system’s faults. Initially, prosecutors assigned Karpelès to assist in the investigation of the disappearance of 850,000 bitcoins from Mt. Gox’s hot and cold wallets, which were worth around $450 million back in 2014. It was not long until their suspicion included Karpelès himself. Upon accusation, Karpelès admitted weakness of the platform’s overall security system, yet he denied confiscating of any of his clients’ cryptocurrency assets.


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Karpelès’s long detention period represents a common tactic adopted by Japanese prosecutors, as around 99 out of every 100 indictments result in conviction, an end result which is sometimes attained via convections reached under duress. 88% of all individuals who went to trial in front of Japanese courts confessed, as reported by the records of the Japanese Supreme Court.

This pattern has been increasingly scrutinized, especially following the last November arrest of the CEO of Nissan, Carlos Ghosn, who was detained and continuously interrogated by prosecutors until earlier this month, when he was finally bailed out.

Mt. Gox began as a trading platform for virtual assets of a collectible card game known as “Magic the Gathering” before shifting to cryptocurrency trading. Karpelès acquired the company from its initial founder in 2011. Trading volume on Mt. Gox skyrocketed after the platform was mentioned in a blog post explaining how bitcoin can be used to buy products on Silk Road, the first popular darknet marketplace, which facilitated the trading of illicit drugs and a myriad of other illegal products. At its peak, around 70% of all completed bitcoin transactions were handled via Mt. Gox’s servers.

However, the platform faced difficulties handling the enormous demand for bitcoin. Hindered by legal and technical problems, it had to declare bankruptcy early in 2014, after it was found to have lost more than 850,000 bitcoins, then equating to more than $450 million. In April 2015, evidence presented by WizSec, a Tokyo security company, proved that most or even all of the lost bitcoins were stolen directly from Mt. Gox’s hot wallet over a long period of time, starting from late in 2011.

Karpelès remains innocent. However, in July 2017, Alexander Vinnik, a Russian entrepreneur, was indicted by US prosecutors claiming that he received and facilitated laundering bitcoin stolen from Mt. Gox. Later on, he was arrested in Greece and became the center of an extradition war among Russia, the United States, and France. Nevertheless, Vinnik’s attorney denied all charges.

Karpelès’s attorney argued that this indictment has helped establish his innocence, who claims that he had always worked for the prosperity of the company.

This verdict has ended what seems to be the last chapter in Karpelès’s story, yet the fate of Mt. Gox’s case still remains unresolved. The company is still in control of a substantial volume of cryptocurrency assets, and multiple claims are still outstanding.

by: Tamer Sameeh

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