MtGox CEO faces likely US arrest as legal woes mount over failed bitcoin exchange

Mark Karpeles

A federal judge this month ordered Mark Karpeles to appear in Dallas on April 17 to explain how his company, the bankrupt bitcoin exchange MtGox, lost at least $400 million worth of customer deposits. It’s a safe bet that Karpeles won’t turn up in Texas anytime soon.

According to lawyers involved in the bankruptcy process, Karpeles would likely be snatched up by law enforcement as soon as he set foot on American soil.

“I assume he would be arrested or a person of interest,” said Roger Townsend of Breskin Johnson & Townsend, adding that the FBI would likely want to question Karpeles about alleged fraud at MtGox, which collapsed in February, or about connections he may have to the notorious online marketplace, Silk Road.

Townsend speculated that the FBI may already be sitting on a grand jury indictment for Karpeles, and pointed out that the FBI has already arrested Karpeles’ friend, Charlie Shrem, for alleged money-laundering associated with Silk Road.

Townsend made the remarks on Tuesday following a presentation at a New York bitcoin event where he and another lawyer, Edgar Sargent of Susman Godfrey, explained the ongoing legal fallout related to Mt. Gox. The lawyers represent a Seattle company Coinlab, which sued MtGox for $75 million last year over a soured deal to offer bitcoins to the North American market.

Since MtGox filed for bankruptcy, lawyers and creditors have been engaged in a global chase in search of what amounts to digital dust. The legal process has been especially complicated, owing to the borderless nature of bitcoin, and to the case’s multiple jurisdictions: the bankruptcy proceedings are underway in Japan and the United States, and the related CoinLab proceeding has so far involved deposing the assistant of a French national — Karpeles — in Taiwan.

On the Texas side of things, U.S. Bankruptcy Judge Stacey Jernigan reportedly said of Karpeles, “If he avails himself of this court, my God, he is going to get himself over here.”

The lawyers, though, expect that Karpeles will not “get himself over here” and that MtGox will name someone else as head of the failed company who will appear at the Texas bankruptcy process instead. The lawyers added the missing money could eventually be found in the hands of individuals.

(In a follow-up conversation, Townsend stated that it’s not certain the money will be found but that there is hope it will be. See note at end of story).

An “imbecile” and a failed rescue plan

Even as the legal process winds its way through the courts, details are still emerging about MtGox’s dramatic collapse in February, and a failed plan to save it.

A Silicon Valley source who is well-known in the bitcoin community but who did not want to be named told me last month that he was approached by other bitcoin stakeholders in February about joining a plan to save and stabilize MtGox.

The person says he declined to join the plan, details of which appeared in a leaked “Crisis Strategy” document in February, in part because the plan lacked information. He also described Karpeles as “an imbecile” who had discovered it was easy to cover up earlier accounting irregularities, and then continued to do so until he was in over his head.

He added that question at the time of the collapse was “Is it a JP Morgan that needs to be saved or just a fucking broker?”

This story was updated at 5:50pm ET to clarify that the deposition in Taiwan was related to the CoinLab case. A further update at 11pm corrects that the lawyers believe the money could (not will) be found, and that it was the assistant of Karpeles who was deposed in Taiwan (Karpeles was present at the deposition).

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