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

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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).

8 Responses to “MtGox CEO faces likely US arrest as legal woes mount over failed bitcoin exchange”

  1. Andrew English

    First of all Mt Gox wasn’t the world biggest Bitcoin Exchange at the time of the collapse. So you fuckers who wrote this story need to get your facts straight, Mt Gox at the time of it’s collapse had about +/- 10% of the worlds Bitcoins (there are 11 million in circulation right now). This doesn’t make it the biggest in the world. It does make it the first Bitcoin exchange in the world as they where the first to open. The reason why they aren’t the biggest is because if you had done your research MtGox had a total of 5 system failures over the last year, the collapse was the 5 and find failure. After the first 4 failures people took their Bitcoins off MtGox.

  2. Jeff, did Mr. Townsend give any sort of clarification of what he meant when he said the coins would be found in the hands of individuals? Did he mean Mark and his friends? Hackers? Is it just pure speculation?

    Thanks for the article and the new information.

    • J, thanks for the comment. I had a follow up conversation with Mr. Townsend who, as per my clarifications above, said the lawyers hoped the money would be found. During the presentation, he said he believed the coins were “in the possession of individuals” but did not elaborate. His subsequent comments, he said the remark was speculative.

      The story is based on my verbatim notes from the presentation and a follow-up conversation with Townsend afterward.

  3. FreeJack2k2

    Karpeles is guilty as sin…there is no chance he isn’t guilty of embezzling and totally complicit in the theft of user funds. He thought he could get away with it. He was wrong.

    • Phillip

      100% agree, and the fact that he tried to keep it quiet for so long does not help is case. Karpeles is a fraudster and a complete coward.

      Only trust Bitcoin services you can actually get your own Bitcoin or cash out of!, etc etc.