TOKYO–The trial of the former CEO of the collapsed bitcoin exchange Mt. Gox on charges of embezzlement and data manipulation opened Tuesday. Mark Karpeles pleaded not guilty on all counts. But even if he is innocent, he is unlikely to win; Japan has a 99 percentage conviction rate once someone has been indicted and Japan’s attorneys truly detest to lose.
And even if a defendant wins, the prosecution can appeal the instance, the accused are retried, and they usually lose on appeal. In fact, “not guilty” verdicts are so rare that a magistrate in the Osaka High Court has become famous merely for actually overturning several guilty verdicts. For Japan, a judge find people innocent–that’s mind-blowing stuff.
It has been a long road to this trial, which began with the proclamation of Mt. Gox losing millions of dollars worth of the virtual currency known as bitcoin in February of 2014. At the time, angry Mt. Gox customers picketed the headquarters of the company with signs reading” Where is our money !” Many had hoped that Tuesday’s trial would shed light on that question.
But the courtroom proceedings probably will only make one thing clear: The Japanese police and prosecution have no damn idea where the bitcoins faded, how they faded, or who took them.
In fact , none of the final charges pertain to the missing bitcoins, which show the Japanese authorities’ colossal failure to solve the mystery of what happened. And indeed, that embarrassing failure may be the real reason Karpeles is even on trial.
Bitcoin is a digital currency created in 2009, first set out in a white paper by the mysterious Satoshi Nakamoto, whose true identity is unknown. There are no physical bitcoins, only balances maintained on a public ledger in cyberspace along with all bitcoin transactions. It is traded like gold and other commodities and lately reached a value of $3000 per bitcoin( BTC ).
According to a copy of the indictment which The Daily Beast was shown, Karpeles is alleged to have moved a total of Y= 341 million ($ 3 million) from a Mt. Gox customer account to an external account between September and December 2013 and this amounts to larceny.
Prosecutors argued in their opening statements that Karpeles managed the company assets and fund entrusted by the company’s clients in the same bank account and failed to respond to requests by company associates to separate them. The Daily Beast spoke to a former accountant for the firm who did confirm that” accounting practices were lax but that in itself is not a crime .”
At the trial, a slimmed-down Karpeles read out a prepared statement in Japanese:” I swear that I am not guilty. I am sincerely sorry for causing difficulty to many clients with the bankruptcy of Mt. Gox ,” he said, and repeated previous claims that the missing bitcoins had been hacked by an outside party.
Of the Y= 341 million allegedly embezzled by Karpeles, some Y= 315 million were used for purchasing a 3D printer business. The attorneys allege that in addition to the acquisition funds, at least Y= 6 million were used to purchase a French luxury bed for Karpeles’ own personal use.
His lawyers told the court that the remittances were Mt. Gox revenues, rather than customer funds, and that accounting entries related to them were part and parcel of the normal process of exchanging cash for bitcoins, and part of Mt. Gox’s business model.
The attorneys seemed confused as to how bitcoin exchanges work. The defense also argued that purchase of the 3D printer business was done as part of the Mt. Gox business plan and that the other money spent was from Karpeles’ wage as a CEO and not taken from corporate funds. Karpeles, the defense said, did not personally profit from the acquisition of the new business.
The defense also argued, slightly cheekily,” In Japan, the CEOs of midsize companies routinely loan fund to group companies or borrow money from companies within their group for M& A. If the prosecution insists that this act is embezzlement or special breech of trust, then that would mean in our country[ Japan] several hundred thousands of these crimes are committed every year .”
When Mt. Gox filed for bankruptcy, it reported that 850,000 bitcoins, worth over $400 million at the time, had disappeared or been stolen by hackers. Later Karpeles determined 200,000 bitcoins in “cold storage” and turned it over to the trustee. Ironically, when bitcoin reached a historic high for two days on June 11, trading at over $3,000 a coin–it would have been possible for the trustee to pay all the creditors the money they had lost. The Mt. Gox trustee holds 200,000 bitcoins which would have been worth over $600 million, almost $200 million more than the estimated $400 million owed to creditors. According to a report in the Asahi Shimbun , the regent is considering cashing in the coins to pay back the creditors.
But what about the other missing 650,000 bitcoins? The police and prosecutors have no notion where they are and at this point in time , no interest in finding out. Lead defense attorney Nobuyasu Ogata and the legal squad representing Karpeles argued in their opening statement Tuesday:
” In order to find out the truth of why Mt. Gox collapsed and what really happened, the defendant has been working with the police, devoting them access to data, hoping they would find the hacker. However, this case has absolutely nothing to do with the company’s breakdown … The collapse of Mt. Gox was an international scandal. The Tokyo Police Department began to investigate it as a hacking suit, but unable to find the criminal, or prove what happened, and unable to publicly acknowledge it they decided they must do something, they apprehended Mark Karpeles instead. By the end of the trial, we will make it clear why an innocent human was brought to justice and that he is not guilty of all the spurious charges that the prosecution has drawn up .”
The case has taken an unusually long time to come to trial in part because the police arrested and rearrested Karpeles hoping that he would make a confession to the whereabouts of the missing coins. He did not.
The police and prosecutors failed to get a complete financial statement of the firm in the initial stages of the investigation. At one point, according to sources in the prosecutor’s office, the judge handling the preparation of the case told the prosecutors,” Stop tacking on charges. A throw-everything-at-the-wall-and-hope-that-something-sticks approach to prosecuting an individual is not acceptable. And get the accounting done correctly .”
The Japanese police do not excel at analyse cyber crimes and in the past have arrested several someones for constructing menaces and other crimes when he was framed by a rascal hacker. One of the innocent victims was browbeaten into making a confession even though he had not perpetrated the crime.
The trial is expected to continue for about six months.
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