Former Mt. Gox CEO Mark Karpeles Gets Suspended Jail Term

Yuki Furukawa

15 Mar 2019, 11:31 PM IST

(Bloomberg) -- Mark Karpeles, a central figure in the early days of Bitcoin who presided over the dramatic 2014 collapse of the world’s biggest cryptocurrency exchange, was found guilty of tampering with financial records but will likely avoid jail time after receiving a suspended sentence.

The former Mt. Gox chief executive officer sometimes mixed his personal finances with those of the exchange and fiddled with its accounts, apparently to hide the fact that the platform had lost money to hackers, the Tokyo District Court said on Friday. The court cleared Karpeles of embezzlement charges, concluding that the 33-year-old Frenchman had acted without ill intent.

Karpeles, who wore a dark suit in court and bowed to the judge before his sentence was handed down, wasn’t on trial for the mysterious disappearance of Bitcoins that led to Mt. Gox’s implosion. He was given a 2 1/2 year suspended sentence, which he won’t have to serve unless he commits another violation within four years.

“The charge of electronic record tampering is true and deserves punishment, but there’s no criminal evidence of embezzlement,” the court said in its verdict. In handing down the suspending jail term, it blamed Karpeles for “massive harm to the trust of his users,” saying “there is no excuse for the defendant, who is an engineer with expert knowledge, to abuse his status and authority to perform clever criminal acts.”

Former Mt. Gox CEO Mark Karpeles Gets Suspended Jail Term

The verdict caps a remarkable rise and fall for Karpeles, who bought Mt. Gox in 2011 and turned it into the world’s dominant venue for buying and selling virtual currencies. The Tokyo-based platform’s closure cast a long shadow over the market, triggering a more than two-year slump in cryptocurrency prices and undermining faith in the exchanges that serve as gatekeepers in an industry that often operates with little to no regulation.

Even after the digital asset boom of 2017, Mt. Gox’s legacy has continued to weigh on investor sentiment. Last year’s tumble in Bitcoin was partly blamed on the trustee overseeing Mt. Gox’s remaining holdings, who has offloaded about 60,000 Bitcoins and plans to distribute the rest to investors who were affected by the exchange’s closure -- a process that’s unaffected by the Karpeles case. The worry is that some of those investors will turn around and sell, further weighing on prices.

Mt. Gox, which started as a marketplace for illustrated trading cards used to play the game “Magic: The Gathering,” filed for bankruptcy protection in 2014 after disclosing that it lost 850,000 Bitcoins, then worth about $500 million. Karpeles later recovered about a fourth of the total, raising questions about the circumstances of the loss and the accuracy of his statements. The court found that Karpeles tampered with records in part to mask the loss.

“We cannot look lightly upon the criminal responsibility of the defendant,” the court said in its ruling.

Karpeles, once dubbed the Baron of Bitcoin, has denied involvement in the coins’ disappearance, apologizing that it happened under his watch but saying he wasn’t responsible. He has said he initially cooperated with Tokyo police, but stopped after realizing they suspected him of taking the coins. Investigators eventually arrested him for falsifying records. He was released on bail around a year later.

Since his trial began in July 2017, Karpeles has professed innocence. As recently as last week, he said those expecting him to go to jail would be disappointed. “I’m not going to prison,” he wrote in a March 8 post on Reddit.

The Karpeles case has attracted increased public interest since the shock arrest in Japan four months ago of another prominent foreign executive: Carlos Ghosn, the former chairman of Nissan Motor Co. The Brazilian-born French national was charged with hiding millions of dollars in deferred income from his fellow executives and board members.