
Q&A With Mt. Gox’s Karpelès: What Went Wrong? - rdl
http://blogs.wsj.com/japanrealtime/2014/06/27/qa-with-mt-goxs-karpeles-what-went-wrong/
======
sillysaurus3
Let me remind everyone that Karpeles is an established liar and a convicted
computer fraudster, and will obviously say or do anything at this point to
clear his own name.

[http://newslines.org/mt-gox/joins-linux-
cyberjoueurs/](http://newslines.org/mt-gox/joins-linux-cyberjoueurs/)

[http://newslines.org/mt-gox/convicted-of-computer-
fraud/](http://newslines.org/mt-gox/convicted-of-computer-fraud/)

Again, what ultimately convinced me of Karpeles' character is that he paid his
IRC support staff to lie to users. The support staff didn't realize they were
being paid to lie, but they were certainly lies. They were being paid to tell
users, "Yes, all of your coins are safe and secure" while Karpeles was
drafting his Mt. Gox crisis report:
[http://www.scribd.com/doc/209050732/MtGox-Situation-
Crisis-S...](http://www.scribd.com/doc/209050732/MtGox-Situation-Crisis-
Strategy-Draft)

Once Mt. Gox was hacked in the aftermath, a log of their trading activity was
leaked. In that log, there's evidence of an Mt. Gox trading bot that had been
operating for a long time, buying up bitcoins in order to inflate the price.

[http://willyreport.wordpress.com/2014/05/25/the-willy-
report...](http://willyreport.wordpress.com/2014/05/25/the-willy-report-proof-
of-massive-fraudulent-trading-activity-at-mt-gox-and-how-it-has-affected-the-
price-of-bitcoin/)

[https://news.ycombinator.com/item?id=7796748](https://news.ycombinator.com/item?id=7796748)

At this point, I don't think Mt. Gox or Karpeles deserves any further
attention, except as a warning that even the largest Bitcoin exchange can
fail, which is why you must store your bitcoins in your own secure wallet, not
any third party service.

EDIT: Also, Mt. Gox lost at most 386 bitcoins to malleability:
[https://news.ycombinator.com/item?id=7482451](https://news.ycombinator.com/item?id=7482451)

~~~
sirdogealot
The willy report was quickly debunked as being FUD.

Those bots were just the dark pool bots that larger players paid Mt Gox to buy
large amounts of Bitcoin on a drip feed system over time so as not to spook
the markets.

~~~
slapresta
> The willy report was quickly debunked as being FUD.

Could you expand on this? I'm really interested.

~~~
ZachPruckowski
The sort of bot he's describing would be designed to mask large purchases and
prevent them from sucking all liquidity out of the market temporarily or
spiking prices.

Let's say I want to buy 500 BTC at $1000 (to make the math easy). I wire Mt
Gox half a million bucks, and try to buy up 500 BTC all at once. This moves
the market massively because that's a sizable chunk of existing sell orders.
To prevent this, I could instead buy a few BTC a minute for the next couple of
hours and I wouldn't drastically shock prices or be as notable. Prices would
still move upwards (because more demand in the network) but they wouldn't
spike. Or Mt Gox could keep a floating reserve, I could pay a free to lock in
the price and move the money around internally to Mt Gox, and they replenish
that reserve a few BTC at a time (taking on price risk if their reserve is
depleted when prices are high, but making profits if they wait to refill that
reserve until prices are in a trough).

Note that I have no evidence this is the case, I'm just trying to explain what
he claimed was the cause.

~~~
joshu
This kind of stuff certainly happens in the capital markets.

------
swalsh
"Q: Why didn’t you hire experienced professionals? A: We tried, but we didn’t
have money and also often they turned us down. A former Financial Services
Agency bureaucrat approached us once last year, but he declined our offer at
the end."

I'm pretty sure what happened here is a professional was interested in helping
out, got a look at the books and ran.

~~~
rayiner
Someone somewhere is thanking his stars that he had the sense to run, and
didn't get caught up in this criminal prosecution.

~~~
patio11
I regretfully can't tell you the context, but suffice it to say the following
was once said in Tokyo: "I do not want to be one of the 100 closest gaijin to
that office when shit goes down." (The Japanese immigration agency is
occasionally - oh wait they still have my renewal form at the office? -
zealous in their execution of their statutory duty to remove undesirable
foreigners from Japan.)

------
rdl
For me the underlying question is still: was he initially just incredibly
incompetent, or always a scam using incompetence as a cover?

Even in the case of just pure incompetence, there was a failure of ethics/law
in how problems were handled, but if it was just incompetence fundamentally,
bringing in a good partner early on might have saved it.

~~~
wpietri
At the limit, I'm not sure those two are distinguishable.

There was a story a while back about a law firm that discovered its escrow
account was empty, even though it should have had millions in it. Turns out a
legal secretary had gotten caught up in a Nigerian scam. She started out
sending a small amount of her own money. They'd tell her they just needed a
little more and then she'd get it all back plus a lot more. As she got deeper
in trouble, at some point she started "borrowing" from her employer.
Incompetence led to pressure that created ethical failure.

My guess (as uninformed as anybody's) is that Karpeles started out merely
incompetent and with underdeveloped ethics. As he got in deeper, he just
focused on trying to stay out of trouble in the short term. That led to
massive snowballing of problems. His very modest helpings of competence and
ethical backbone were quickly overrun, demoted in priority to the same level
as getting enough niacin in his diet. The best liars I know aren't people who
know that they're lying; they're people who focus on saying what you want to
hear while ignoring entirely what the truth might be.

For those unfamiliar with the Dunning-Kruger effect, it also seems relevant
here:
[http://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect](http://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect)

~~~
argc
Seems likely, any references that support your theory? Many people on
/r/bitcoin and such places seemed to think that he outright stole it, but
could be pure speculation (I didn't follow the story, don't take my word for
it).

~~~
Cyther606
This is because embezzlement is rampant in the Bitcoin space, e.g.: Inputs.io,
TradeFortress, MyBitcoin, Silk Road 2.0, GBL, I could go on. Embezzlement, as
in you get "hacked", oops, we lost everyone's money, everyone move along,
nothing to see here.

Anyone who thinks Mark Karpeles isn't guilty of embezzlement at a minimum -
MINIMUM - just isn't viewing the situation in light of the massive amounts of
operator fraud that have historically taken place, not to mention copious
amounts of evidence suggesting Mark Karpeles' talking points have been
entirely fabricated from the beginning. Remember, he stole over a _billion_
dollars: 850,000 * 1200. He only relinquished control of 200,000 of those
850,000 after being called out on it by the community. At this point the legal
system is the least of Karpeles' worries.

~~~
aianus
Why would he want to be a laughingstock digital billionaire under police
scrutiny in bankruptcy court when he's already a successful business owner
with tens of millions? It really doesn't make sense that he up and decided to
steal them. If he did it he'll die having spent less of his stolen fortune
than he would have spent of his legitimate fortune.

Seems a lot more likely he's an idiot who got in over his head.

~~~
Cyther606
Sorry, but your line of thinking takes for granted that criminality doesn't
pay. On the contrary. Having a hidden fortune is more valuable than having a
pubilc fortune, objectively in that you pay less taxes and forego frivilous
lawsuits and subjectively in that you can walk around less paranoid of
kidnappings. Second of all, there's no way to stop Karpeles from mixing his
coins. People who don't have much experience using Bitcoin are often operating
in the PayPal model, where it takes a trusted third party to spend your money
and even if not, the other person is known. In the Bitcoin space, there is no
trusted third party, and if your coins are mixed and you and the other person
are behind Tor, there's effectively no identifiable information involved in
the transaction.

Embezzling Bitcoins is the perfect crime. As has been mentioned already,
Karpeles has a history of computer fraud, so embezzling digital money would be
right up his alley. He had the means, motive and opportunity to do so. When
you consider the rampant embezzlement in a historical context ... it's pretty
much case closed. Your argument boils down to "this time it's different".
Also, laughing stock digital billionaire? Sorry but there's no such thing as a
laughing stock billionaire. I'd take a billion knowing it would make me the
"laughing stock" of the world, and so would anyone with a brain.

If the community hadn't called Karpeles out on using transaction malleability
as a fictional excuse for losing 850,000 BTC, and we had all believed
Karpeles, he would in all likelihood be looking at Japanese bankruptcy court
followed by a lifetime of traveling the world with a hidden fortune rivaling
Satoshi's.

~~~
kbenson
If embezzling Bitcoins was the _perfect_ crime, there wouldn't be an active
police investigation.

~~~
Cyther606
There isn't an active police investigation, not in Japan at least. In Japan,
there are bankruptcy proceedings scheduled, and absolutely no police
investigation into embezzlement that anyone knows of.

A court requested Karpeles appear in Texas to face possible charges for
criminal wrongdoing, but again, this was only after he had been called out by
the wider Bitcoin community for fabricating excuses. FYI: Karpeles turned down
the offer.

Fact is embezzling Bitcoin has unquestionably _been_ the perfect crime for
everyone who has attempted it. Karpeles made copious amounts of errors on his
way to embezzling coins, and there's still people out there like yourself that
would allow him to get away with it. Imagine if he had been anonymous. Imagine
if he hadn't used the transaction malleability excuse. Imagine if the MtGox
private database hadn't been leaked. Imagine if there were no investigative
reporters in the wider Bitcoin community! Again, if that were the case, which
thankfully it has not been the case, Karpeles would be looking at simple
Japanese bankruptcy proceedings followed by a lifetime of world travel with a
hidden fortune rivaling Satoshi's.

~~~
kbenson
> A: The police are investigating the case so I won’t be able to say much. But
> if asked, I’m willing to show any bitcoin entrepreneurs how I did it wrong,
> so they won’t repeat the same mistake.

Is this part of the interview a lie then? I'm seriously asking, I don't know
and you seem to have some information as to this aspect. It seems like a silly
thing to lie about in an interview though.

 _there 's still people out there like yourself that would allow him to get
away with it_

I'm not sure what you are talking about, but you seem to be projecting some
argument on to me that I haven't made. I was simply calling out a bit of
hyperbole.

 _Imagine if the MtGox private database hadn 't been leaked. Imagine if there
were no investigative reporters in the wider Bitcoin community! Again, if that
were the case, which thankfully it has not been the case..._

Exactly, there's quite a bit of scrutiny and investigation at this point.
Hardly what I would call the perfect crime.

Also, aren't these bitcoins traceable to wherever they are eventually used? Is
it really that good of a crime when a) you'll forever face public scrutiny (to
varying degrees) by people with a vested interest in recovering the money, b)
may have an investigation as to your conduct, and c) your stolen money is
forever traceable?

~~~
Cyther606
That part of the interview alludes to Karpeles claiming he was "physically
attacked" causing hundreds of millions of dollars in losses no doubt.

I only meant to imply that many have read this WSJ interview without any
historical context.

At this point, there may be scrutiny, but just a few months ago, people all
over the place were claiming the US government must've seized MtGox's funds.
If you look at @magicaltux's twitter feed, he even tried to fan flames on that
government conspiracy theory in the same tweet where he began fabricating the
excuse of being "physically attacked".

To anyone who hasn't been following the MtGox fiasco since mid-2013, which is
when MtGox first started having "liquidity issues", it may very well seem like
Karpeles has been charged with fraud. No, that isn't the case. Karpeles has
been screaming "Transaction malleability" (BS), "US government stole it" (BS),
and now "Physical attacker stole it". The Bitcoin community actually went
along with each of Karpeles excuses, but public opinion has just recently
began to spell out FRAUD, loudly and repeatedly. There is still no criminal
investigation of Karpeles for fraud, just a lot of loud people screaming it on
the Internet, because it is obvious and because it has happened so many times
before in the Bitcoin space.

The truth is, Bitcoins aren't traceable if you know what you're doing over
Tor. Anonymous spending is very much possible. Running a Bitcoin exchange with
a proprietary database and large shared wallet with thousands upon thousands
of BTC in it, is actually the perfect vehicle for coin mixing and I would be
shocked if Karpeles didn't mix in personal BTC withdrawals over his years of
running MtGox. It's really simple, transfer BTC into an exchange account with
fake or no identifiable info attached to the account, wait a bit, and withdraw
fresh coins. With judicious use of Tor, you have fresh new coins, and the
original coins are tumbled around a gigantic shared wallet. There's just no
practical way of linking BTC addresses to your identity if you know what
you're doing.

~~~
kbenson
_The Bitcoin community actually went along with each of Karpeles excuses_

I haven't been following the bitcoin community reaction, but from what I
remember reading here, most people seemed VERY critical of his explanations of
what happened.

 _The truth is, Bitcoins aren 't traceable if you know what you're doing over
Tor_

Do you mind explaining this a bit? My understanding is that there's a trail of
all transactions (transfers, I guess) of a bitcoin, so there's some tracking
of the history of the funds. If it's a matter of mixing small amounts into
larger shared wallets, it seems like what's needed (if it doesn't already
exist) is a curated list of known bad bitcoins. If there was a public service
to check whether the source bitcoin is blacklisted (or what percentage it's
blacklisted, if mixed into a larger wallet), then sites accepting bitcoin
trasnfers could make decisions on whether to accept it or not. This obviously
would only work if a) people were willing to accept this list as bad, b) doing
the legwork of tracking the history of a coin back isn't too computationally
expensive, c) it was adopted soon, before the coins got too mixed in and how
"bad" they are is diluted. It's then in your best interest to reject bad coins
because it taints your wallet.

But maybe I've got a few assumptions in there that are completely bunk. I'm
mostly an outsider to this.

In any case, the fact that bitcoin has a trail built in seems like it offers
numerous ways to reduce the attractiveness of stealing them by making them
harder to convert into goods and currency.

------
user24
I think there's definitely some sort of reality distortion field in Mark's
head - that or the interview's been heavily edited.

Thankfully I never had any money in MtGox, but comments like "I learned a lot,
but I lost a lot" and "I always worried about ‘What if all the bitcoins were
gone?’" really make me think he never did and still doesn't understand that he
was responsible for half a billion dollars of other people's money.

I just don't comprehend his attitude. He's posting pictures of kittens on
twitter. It's just... odd.

~~~
chicagomint
Even his own mother seems to think so.

 _“(Mark’s) communication at a personal level is catastrophic. It’s always
been difficult to get him to speak. We tried to get him to be more extrovert”_

[http://www.reuters.com/article/2014/04/21/us-bitcoin-
mtgox-k...](http://www.reuters.com/article/2014/04/21/us-bitcoin-mtgox-
karpeles-mother-idUSBREA3K01J20140421)

She does believe her son is honest. I imagine most mothers might be slightly
biased towards that judgment.

I think we will be finding out more information about what actually happened
at Mt. Gox for years to come.

Who has the rights to the movie?

------
pachydermic
Did anyone look at the site for that other company he was talking about?

On its about page, it says:

"""

Tibanne Co. Ltd. is a Tokyo, Japan-based corporation founded in 2009 by Mark
Karpeles, a young technopreneur with more than 15 years experience in software
development, network administration and business development. Mark is well-
versed in multiple programming languages, has a strong background in network
security, and is well-known in the tech community.

Tibanne specializes in web hosting, application development and system
management. We are currently engaged in the research and development of new
and existing services to produce innovative solutions for our clients.

Our team is comprised of talented Japanese and international staff hailing
from many countries, disciplines and specializations.

"""

What the fuck? What is wrong with this guy... I gotta admire his shameless
self-promotion. I'd be hiding under a rock if I were him, not banking on my
ruined reputation for my other company.

I wonder what else there is to this story

~~~
danielweber
_a young technopreneur with more than 15 years experience_

I can't decide if I'm more annoyed by a) being both "young" plus having "15
years experience", or b) "technopreneur."

~~~
nilved
What's wrong with a? In another two and a half years I'll have 15 years of
programming experience and still be well below the average age on this site.

------
afreak
> We tried, but we didn’t have money and also often they turned us down. A
> former Financial Services Agency bureaucrat approached us once last year,
> but he declined our offer at the end.

This is disturbing. For an organisation that promoted itself as a focal point
for Bitcoin trading, claiming to be the largest, what does this mean for the
other exchanges and services out there? Are they all running on just hopes and
dreams?

Overall this article is quite light and it would have been nice to see more
questions asked. It seemed rather softball. Like where were the questions
about his falsifying of his employment history? How did he go from running a
gaming service (not Magic, but Ragnarok Online) to running a currency
exchange?

These questions should be asked and they should be asked in a hardball sort of
fashion.

~~~
sp332
_Are they all running on just hopes and dreams?_

Well, yeah. Being the "biggest" puts you in a good spot to ride out the growth
of bitcoin, but bitcoin is currently tiny. All the exchanges are tiny.

------
moe
_Q: Why didn’t you hire experienced professionals? A: We tried, but we didn’t
have money [...]_

Says the CEO of a company that 'lost' $500MM worth of bitcoins.

I think the mere fact that he's still not in prison suggests that he retained
at least enough of the 'lost' coins to bribe a few people...

~~~
icebraining
I'm not sure I follow you. The money that they lost (scare quotes or not) was
not theirs, it was their users'. It's not like they could use it to hire
someone.

~~~
moe
In 2013 MtGox collected on average $150k USD in transaction fees. Per day.

On peak days, such as 1st December 2013, MtGox collected up to $1.3MM USD in
fees.

That is money they could have used to hire someone.

Karpeles claim of 'we had no money' is not just laughable. It's an open slap
in the face of everyone who lost money to MtGox.

------
ipsin
I would love to hear Karpeles explain or deny the "Willy" bot theory, because
for me it's still a bit of mystery whether it was an attack or a built-in
attempt to dig his company out of a hole.

------
fmavituna
_Q: What were your mistakes? A: Security._

I still can't wrap my head around how someone decides to do a startup around
bitcoin and doesn't make security their first priority from the beginning.

------
briantakita
> Right now, it is so easy to use it for illegal activities, such as money
> laundering

Hmmm. Freudian slip?

------
BillyParadise
What went wrong? "They trusted me with their bitcoins."

------
notastartup
so did he take all the bitcoins for himself?

------
mantraxD
Well there was a complication during his birth that caused extended oxygen
deprivation, and he'll never be quite right his entire life. Then people gave
him millions worth of their savings. That's what went wrong.

I actually happen to think doing interviews with him, struggling to explain
the unexplainable is quite pointless. It's cruel entertainment. It's like
asking a baby why are those pants pooped.

~~~
loopdoend
Are you creating multiple throwaways _just_ to troll users on this site?
[https://news.ycombinator.com/user?id=mantraxC](https://news.ycombinator.com/user?id=mantraxC)
[https://news.ycombinator.com/threads?id=mantraxB](https://news.ycombinator.com/threads?id=mantraxB)

~~~
mantraxD
Oh come on, I have _one_ post that's been substantially negatively modded and
the little nerd detectives are coming out of their basements to shower me with
their investigation insights.

Yes, Sherlock, I have a few accounts, but I do it because the site is so coded
that it's easier to make new accounts than to remember my passwords. So sue
me.

Why aren't _you_ creating throwaway accounts. Are you here for the achievement
badges? Building a legacy? To leave your children one day or something.

I happen to think points are earned so they can be wasted from time to time.
It keeps life in balance.

The purpose of me posting is so I can say what I want to say, I don't care
about the scores. Most often they're positive, from time to time they're
negative. So be it.

And if I wanted to create throwaway accounts, I wouldn't do so with _the same
name and easily identifiable suffix_ , so you can then nag me about it,
genius.

Those previous accounts all have a positive score, by the way. But since for
the first time ever, I was coerced into a rant, I guess this one's a first.
I've _never_ went off topic on NewsHackers. You made me do it, so
congratulations.

------
homersapien
"I wish I had five of me..."

So that the train wreck would have been 5x as bad?

