The ex-CEO of Mt. Gox is seized by Japanese authorities on suspicion of creating fake bitcoins and misusing customers’ funds. He admitted he created fake bitcoins but only to test the computer system.

Mark Karpeles was arrested in Japan on Saturday 1 August, says the Japan Times. On Sunday morning, he was taken to the Tokyo District Public Prosecutor’s Office for questioning. He is suspected to have created $1 million worth of fake bitcoins and appropriating $8.9 million of customer deposits that he allegedly sent to his private accounts. The investigators also plan to clarify whether he was involved in the loss of 650,000 bitcoins by the Mt. Gox.

Before his arrest, the ex-CEO of the Tokyo-based bitcoin exchange declared he never misused customers’ money, still blaming outside hackers for the bitcoin theft. However, according to the Japan Times’s sources, Karpeles admitted he did create fake bitcoins. He claims the amount is not important, “in the range of several thousand yen or several tens of thousands of yen” (several tens or hundreds of dollars) and used that amount only to test the system. 

The crash of Mt. Gox, covered in a recent article by CoinFox, occurred in February 2014, with 650,000 BTC missing (at that time worth more than $300 million). The leadership of the company blamed external hackers but investigators suspected an inside attack.

In June 2011, Mt. Gox, the most popular bitcoin exchange in the world, had at least 424,242 BTC, as was demonstrated by a bitcoin transaction made by Karpeles. However, after this date the funds started to leak out. According to an investigation by Wizsec, more than 400,000 BTC were stolen from Mt. Gox between June 2011 and May 2012 and probably sold for less than $20 apiece.

More recently, Karpeles was suspected of creating fake accounts with exaggerated bitcoin balances. Therefore, a portion of 650,000 bitcoins believed to be missing from the Mt. Gox exchange may never have existed in reality.

Karpeles have not yet been formally charged: Japanese law allows questioning an arrested person for three weeks. CoinFox will continue to monitor the developing story.