At Mt. Gox bitcoin hub, 'geek' CEO sought both control and escape

At Mt. Gox bitcoin hub, 'geek' CEO sought both control and escape
Mark Karpeles, chief executive of Mt. Gox, attends a news conference at the Tokyo District Court in Tokyo February 28, 2014.

TOKYO - In June 2011, when customers of now-bankrupt bitcoin exchange Mt. Gox agitated for proof that the Tokyo-based firm was still solvent after a hacking attack, CEO Mark Karpeles turned to the comedy science fiction novel "The Hitchhikers Guide to the Galaxy".

During an online chat, Karpeles moved the equivalent of US$170 million (S$213 million) in bitcoin at today's market rates - the virtual equivalent of a bank manager flashing a wad of cash in a wallet to establish credit. The gesture - with a sly wink to the "geek" culture Karpeles believed he shared with many of his 50,000 customers at the time, including an interest in coding, Japanese manga comics and science fiction - succeeded.

By moving 424,242 bitcoins, Karpeles, then 26, evoked the random number, 42, described as the "meaning of life" in Douglas Adams' sci-fi novel. "Don't come after me claiming we have no coins," Karpeles said, according to a transcript of that online discussion. "42 is the answer."

As the price of bitcoin soared from a few dollars to above US$1,000, Mt. Gox grew to become the world's largest exchange for the digital currency, handling flows worth US$3 billion in 2013, by the company's own reckoning.

But even as Mt. Gox boomed, French-born Karpeles seemed both keen to maintain total control of key operations and indifferent to commercial success, according to former staff and associates who spoke to Reuters, but asked not to be named because of ongoing investigations into the exchange's collapse.

Creditors who want to know how Mt. Gox at one point lost some US$500 million worth of bitcoin and another US$27 million in cash from its bank accounts, are seeking answers from Karpeles, who has spent recent days huddled in meetings with lawyers in Tokyo.

Mt. Gox and its lawyers declined repeated requests for comment for this article.

Lawyers for Karpeles told a US judge last week that he was "not willing" to travel to the United States - as ordered by the judge to answer questions in a bankruptcy court - until his attorneys can "get up to speed" on a new subpoena from the US Treasury Department. Karpeles doesn't want to go to the US as he fears he could be arrested by authorities there, a person familiar with his thinking said.

"Regardless of whether it was a massive fraud or whether he was just grossly negligent, at the end of the day he's at fault," said Steven Woodrow, a lawyer representing a US class action against Karpeles brought by Mt. Gox creditors.

Mt. Gox's bid to resuscitate its business was dismissed by a Tokyo court on Wednesday, and the court-appointed administrator said that meant the firm was likely to be liquidated. He added that Karpeles was likely to be investigated for liability in the exchange's collapse.

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