Bitcoin exchange CEO manipulated user data, lost $480 million

Mark Karpeles, the head of defunct Bitcoin exchange MtGox, manipulated its computer system at least 30 times over a couple of years, a report said Monday, as Tokyo promised greater efforts to regulate the digital currency.

The fresh allegation against France-born Karpeles, 30, follows his arrest Saturday by Tokyo police, more than a year after the once-dominant exchange collapsed in the wake of fraud allegations.

Citing investigators, Japan's top-selling Yomiuri newspaper said Monday that Karpeles fraudulently tinkered with data and transferred funds to other firms controlled by him dozens of times between 2011 and 2013.

Police are questioning Karpeles about his alleged spending of customer deposits worth about 1.1 billion yen ($8.9 million), according to public broadcaster NHK and the Yomiuri.

Officially, Karpeles was arrested for allegedly manipulating data in 2013 to artificially create about $1.0 million in Bitcoins.

But police were also investigating his possible involvement in the massive loss of hundreds of millions of dollars worth of the virtual currency last year, local media have said.

In Japan police can hold a suspect without charge for up to three weeks, during which time they may carry out intense interrogations in an attempt to extract a confession. Karpeles is currently in police custody.

In response to the arrest, Tokyo on Monday said it would boost efforts to regulate the crypto-currency in coordination with other G7 countries.

'With respect to virtual currencies such as Bitcoin, we have gathered information and discussed measures' to regulate it, top government spokesman Yoshihide Suga told a regular press briefing.

'At the G7 summit, it was requested that each country introduce regulations from the viewpoint of measures to stop terrorism financing and money-laundering.'

Regulators have scrambled to respond to the use of Bitcoins, with some calling for caution until rules are developed to stop them being abused.

Bitcoins are generated by complex chains of interactions among a huge network of computers around the planet, and are not backed by any government or central bank, unlike traditional currencies.

Backers say virtual currencies allow for an efficient and anonymous way to store and transfer funds online.

But critics argue the lack of legal framework governing the currency, the opaque way it is traded and its volatility make it dangerous.

The global virtual currency community was shaken by the shuttering of MtGox, which froze withdrawals early last year because of what the firm said was a bug in the software underpinning Bitcoins that allowed hackers to pilfer them.

The exchange -- which once boasted of handling around 80% of global Bitcoin transactions -- filed for bankruptcy protection soon after the cyber-money went missing.

It admitted losing 850,000 coins worth 48 billion yen ($387 million at current exchange rates). They were worth about $480 million at the time of the disappearance.

Karpeles later said he had found some 200,000 of the lost Bitcoins in a 'cold wallet' -- a storage device such as a memory stick that is not connected to other computers.

Bitcoin's reputation was also damaged when US authorities seized funds as part of an investigation into the online black market Silk Road.