Two years before its spectacular implosion and subsequent filing for bankruptcy, employees of Mt. Gox – once one of the world’s most trusted name in Bitcoin trading – had apparently challenged CEO Mark Karpeles and asked him in a meeting whether the clients’ funds were being spent for the company’s overhead costs, this according to three people who participated in the discussion. Because of the possibility of legal action, the sources preferred to remain anonymous, but issue of how the Tokyo-based Bitcoin exchange handled and possibly used other people’s money is an important cog in the information behind this multimillion-dollar mystery which is right now being investigated by Japanese authorities.
Based on information that the Japanese authorities have collated from current and former Mt. Gox employees, the firm was actually getting itself ready for expansion. But the employees were wondering if the peoples’ money were being used for that move. By 2012, a small group of Mt. Gox employees had asked for a meeting with Karpeles, because concerns were growing that customer funds were, at that point, being used to cover operating costs, most of which was increasing. Interviewees testified about these expenses, including rent in a Tokyo high-rise that also housed offices for Hulu and Google, high-tech gadgets, and a racing version of a Honda Civic for Karpeles, imported from the UK.
The small problem was that these employees did not have access to the financial records and bank accounts of Mt. Gox, only Karpeles had that. The group asked Karpeles, then 26, to respond to their estimates that Mt. Gox was spending more than its income. 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.
Japanese bankruptcy and police officials are now looking through the available information to see how this Tokyo startup – which started as a gaming card trading company – was able to dominate global trade in Bitcoins, a type of virtual currency that was beginning to find legitimacy before the Mt. Gox’s fall from grace. The company had somehow managed to lose more than US$27 million in legitimate cash assets held in a bank, as well as Bitcoins worth around US$450 million in today’s trading prices, something that Japanese authorities want to get to the bottom of, especially as the company has filed for insolvency.