Mark Karpelès, the head of collapsed Japanese bitcoin exchange Mt. Gox, has been arrested in Tokyo on fraud and embezzlement charges.
The police said that Karpelès “unjustly inflated the balance” of an account registered under his name by falsifying transaction records on a system which was used by Mt. Gox to convert bitcoins to dollars.
“He created false information that $1 million had been transferred into the account, when in fact it had not been,” the police said in a short statement.
The company, which was once the largest bitcoin exchange, filed for bankruptcy in the U.S and Japan in February last year after it reported a loss of 850,000 bitcoins worth $450 million and $27 million in cash.
Of the 850,000, the company reportedly recovered 200,000 bitcoins from an overlooked part of its system. However, while filing for bankruptcy, the exchange couldn’t clarify if it just lost the bitcoins or if hackers stole it as it clearly had a weak system in place to manage the assets.
Post-collapse, many employees of the bitcoin exchange accused Karpelès of illegally using clients’ money for covering the operational costs of the organization.
Before being arrested, Karpelès reached out to The Wall Street Journal to address reports on his possible arrest and said that accusations made by the police were false and that he would deny them.
However, bitcoin security consulting firm Wizsec, which ran an unofficial in-depth investigation into the collapse of the exchange, found evidence, which told another story.
The investigation led to the bot “Willy,” which reportedly used about 200 accounts for buying bitcoins with each account remaining active just once for a specific period of time. The investigation concluded that the lost money was an inside job.