Japanese police are set to rearrest former Mt Gox Chief Executive Officer Mark Karpeles as their investigation into the disappearance of funds from the now failed Bitcoin exchange continues.

According to reports, local police believe they now have enough evidence to accuse Karpeles of embezzlement, alleging specifically that he misappropriated $2.6 million of deposits from the trading accounts of Mt Gox customers.

Karpeles had been previously arrested by the Tokyo Metropolitan Police Department on charges of “fraudulently producing and using private electromagnetic records,” specifically that he had fraudulently manipulated Mt Gox’s cryptocurrency system and inflated the Bitcoin balance in bogus accounts; under Japanese law a suspect can only be held up to three weeks without formal charges being laid, hence the requirement for Karpeles to be rearrested on a new accusation.

According to the Financial Times, the rearrest will extend a process known informally to police and prosecutors as shomusen — a “war of attrition” that is waged by investigators who are seeking to obtain a confession from their detainee.

Along with a substantial portion of the money alleged to have been used to buy software rights on behalf of the company, one of the embezzlement accusations pertains to Karpeles purchasing a $48,000 bed, which police say was intended for personal use.

Karpeles lawyer denied the allegations, saying that the “the deposits were used for investments in new businesses while the bed was purchased as interior decoration for his guesthouse, both of which were meant as marketing tools to promote the use of bitcoins.”

“Despite the long detention period, the fact that investigative authorities could only come up with these reasons to make their case for embezzlement is evidence that Mark was not involved for personal reasons in the disappearance of massive cash and bitcoins,” the lawyer added.

Missing millions

Of particular note with these latest developments is that authorities seem no closer to discovering the whereabouts of the some 650,000 missing Bitcoins that disappeared with the collapse of Mt Gox; whether they were lost due to the site being hacked or an insider job (with or without Karpeles involvement) is still officially subject to conjecture, even if the evidence points towards it being stolen by an employee of the defunct exchange.

Naturally the many victims who lost millions from the collapse of Mt Gox would like to know what happened to their Bitcoins, but there is some solace in knowing that even if the charges do not relate directly to the overall loss, Karpeles may yet be punished in part for his gross negligence in allowing Mt Gox to collapse in the first place.

The formal rearrest of Karpeles is expected to take place Friday local time.

Image credit: z0/Flickr/CC by 2.0