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March 31, 2014

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Home » Business » Finance

Mt Gox staff asked CEO over use of money in 2012

Source: Agencies | March 31, 2014, Monday | Print Edition

TWO years before Mt Gox filed for bankruptcy, a half dozen employees at the Tokyo-based bitcoin exchange challenged CEO Mark Karpeles over whether client money was being used to cover costs, according to three people who participated in the discussion.

The question of how Mt Gox handled other people’s money — the issue raised by staff in the showdown with Karpeles in early 2012 — remains crucial to unraveling a multi-million-dollar mystery under examination by authorities in Japan.

A bankruptcy administrator and police are seeking to determine how a Tokyo startup that shot from obscurity to dominate global trade in bitcoin managed to lose more than US$27 million in old-fashioned cash held in a bank as well as bitcoins worth close to US$450 million at today’s prices.

The still-unresolved issue has thrown a spotlight on how Mt Gox functioned as a hybrid between an online brokerage and an exchange. Essentially, the more than 1 million traders who used Mt Gox at its peak had entrusted a three-year-old firm to hold their money safely until they decided to cash out.

A court-appointed bankruptcy administrator on Friday said an initial examination of Mt Gox — key to determining whether Mt Gox’s users will be able to recover some of what they had on deposit with the exchange — would not be complete until May, citing the involvement of authorities in the case.

Strains emerge

Current and former employees at Mt Gox described the strains that emerged over the handling of customer money just as the firm was gearing up for expansion and bitcoin was edging out of the shadows as an investment and a means of online settlement.

By early 2012, a small group of Mt Gox employees, all of whom worked on one-year contracts, began to worry that customer funds had been diverted to cover operating costs that they estimated to be rising. Those costs included rent in a Tokyo high-rise that also housed offices for Hulu and Google, high-tech gadgets such as a robot and a 3D printer and a souped-up, racing version of the Honda Civic imported from Britain for Karpeles, according to people who have reviewed expenses.

Unlike Karpeles, the employees say they did not have access to the financial records of Mt Gox. They asked for a formal meeting with the then-26-year-old Karpeles in early 2012, according to those involved, and asked him to respond to their estimate that Mt Gox was spending more than it was taking in. They were also concerned that company expenses were being paid from the same bank account that was used for customer deposits.

Karpeles told the group that customer money was not being used to fund the business, but declined to provide details on how the business had covered any loss. The meeting broke off after about an hour, those who participated said.

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