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Mark Karpeles, Chief of Bankrupt Bitcoin Exchange, Is Arrested in Tokyo

Mark Karpeles in 2014.Credit...Jiji Press/Agence France-Presse — Getty Images

TOKYO — Since the collapse last year of Mt. Gox, the exchange that served as the largest hub for storing and trading the virtual currency Bitcoin, law enforcement officials and angry clients have been asking what happened to nearly half a billion dollars in Bitcoins that the company said had vanished from its computer systems.

On Saturday, the Japanese police arrested Mark Karpeles, the head of the exchange, which was based in Tokyo, on suspicion that he had used the popular online financial platform, which he developed, to illicitly add $1 million to an account under his control.

But the arrest, and the small amount of information divulged by Japanese law enforcement officials, shed little light on the larger mystery of the missing Bitcoins.

Television news video showed officers from the Tokyo Metropolitan Police Department leading Mr. Karpeles, a 30-year-old French national, from his apartment early Saturday morning. In a statement, the police said they believed that Mr. Karpeles had “unjustly inflated the balance” of an account held under his name by manipulating transaction records on a system that Mt. Gox used to swap Bitcoins for dollars.

“He created false information that $1 million had been transferred into the account, when in fact it had not been,” the police said in a short statement.

The implosion of Mt. Gox, which Mr. Karpeles nurtured from humble beginnings as a platform for trading collectible cards from the game Magic: The Gathering, shook the still-developing world of virtual currencies. The sophisticated encryption that makes it possible to use Bitcoin conveniently and anonymously did not, the episode seemed to show, necessarily protect it against theft or security lapses at one’s virtual bank.

Before it filed for bankruptcy in February of last year, Mt. Gox said 850,000 Bitcoins, mostly belonging to its clients, had been either lost or stolen by hackers, an amount worth more than $450 million at the time. The company also said it had lost $27 million in cash.

Mt. Gox later said it had recovered 200,000 of the missing Bitcoins from an overlooked part of its computer systems. With its accounting in disarray, however, it said it could not be sure what had happened to the rest, or even verify exactly how many Bitcoins it had actually held to begin with.

Mr. Karpeles has apologized for “weaknesses in the system” but denied that he had taken any of his clients’ assets. On Friday night, in response to reports in the Japanese news media that he would soon be arrested, he sent instant messages to The Wall Street Journal saying the accusations made by the police were “false” and that he would “of course deny” them, The Journal reported.

Lawyers at an international law firm that has represented Mr. Karpeles did not respond to calls seeking comment. Mr. Karpeles has not been formally charged. The Japanese authorities can hold suspects for several weeks before deciding whether to bring charges.

The police did not say where they thought the $1 million that they claimed was falsely shown in Mr. Karpeles’s account had come from or what he intended to do with it.

After the exchange’s collapse, former employees came forward to accuse Mr. Karpeles of dipping into clients’ accounts to cover the exchange’s operating costs. The practice, they said, was common at Mt. Gox well before the mass disappearance of Bitcoins that ultimately sank it.

The Yomiuri Shimbun, Japan’s largest newspaper, citing unnamed police sources, said the money was suspected to have been siphoned from accounts held by Mt. Gox users.

In any case, the amount cited by the police represents only a tiny fraction of the value of the Bitcoins that went missing from Mt. Gox.

Makiko Inoue contributed reporting.

A version of this article appears in print on  , Section A, Page 8 of the New York edition with the headline: Chief of Failed Exchange for Bitcoin Is Arrested. Order Reprints | Today’s Paper | Subscribe

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