MtGox CEO Off The Hook For Embezzlement Charges, Gets Suspended Sentence

The court ruled Karpelès did not financially hurt the exchange.

  • On Thursday, March 14, Mark Karpelès, the former CEO of now-defunct cryptocurrency exchange MtGox appeared in a Tokyo court.

    According to a Wall Street Journal (WSJ) report, a three-judge panel found Karpelès not guilty on charges of embezzlement and abusing his position in the company for personal gain. However, the embattled ex-CEO was found guilty on charges of producing illegal records, for which the court gave him a suspended sentence of two and a half years; Karpelès won’t go to jail if he behaves himself for the next four years.

    A bit of backstory: In 2014, the MtGox exchange stopped trading after a hack led to 850,000 bitcoin being stolen. However, that number dropped to 650,000 when Karpelès mysteriously found 200,000 bitcoin while searching the contents of various MtGox wallets. In June 2018, a Tokyo Court approved a petition to start the rehabilitation process intended to allow customers to regain some of their stolen funds. In August 2018, Nobuaki Kobayashi, rehabilitation trustee for MtGox, published an online guide outlining three different ways customers are able to file “proof of rehabilitation claims.”

    Fast-forward to the 2019 trial: Chief Judge Tomoyuki Nakayama claimed Karpelès’ actions did not cause MtGox any financial harm and that it is very common for business owners to borrow money from their own company and neglect proper accounting. The judge also found no proof that Karpelès had no intention of replacing the money that he borrowed.

    According to The Japan Times, Japanese prosecutors were looking for a 10-year sentence based on the fact that Karpelès used customer funds to purchase a 3D-printing company. The prosecutors claimed this purchase was of no benefit to the exchange. However, the judges disagreed, saying the decision was reasonable and that the 3D-printing business had the potential to be a “profitable asset” for the exchange.

    The three judges ruled that the embezzlement charges could not be proved because MtGox did not have a suitable accounting structure in place to document when money was borrowed from the exchange.

    According to the WSJ, Kobayashi has sold a large portion of the remaining 200,000 bitcoin to “lock in gains.” Kobayashi intends to submit a plan to the court outlining the best method to allocate funds back to the exchange‘s customers by April 26, 2019. 

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