epa04868360 (FILE) A file picture dated 28 February 2014 shows Mark Karpeles, Chief Executive Officer of Tokyo-based bitcoin exchange Mt. Gox, attending a news conference in Tokyo, Japan. On 01 August 2015, local media reported that Japanese police arrested Mt. Gox CEO Mark Karpeles following the loss of about 850,000 bitcoins in 2014. The police suspects the Frenchman is a suspect of fraudulently manipulating the Bitcoin system.  EPA/KIMIMASA MAYAMA

Japanese police have arrested Mark Karpelès, the head of the bankrupt Japan-based bitcoin exchange Mt Gox, who is alleged to have manipulated the computer system to inflate his account.

Police allege that he made an illegal entry to the system in February 2013 and increased the balance of his account by $1m.

Mr Karpelès denies any wrongdoing.

The case has exposed both the complexities of crime relating to the bitcoin virtual currency, and the profound difficulties encountered by the Japanese police as they have attempted to investigate Mt Gox, once the world’s most popular venue for trading and storing bitcoin.

When Mt Gox closed its site in early 2014, Mr Karpelès said that bitcoins worth several hundred million dollars were unaccounted for.

The alleged crimes involved are hard to pin down, say police sources, because of the absence of specific laws governing the virtual currency. Police have acknowledged privately that there are technical elements of the alleged disappearance of nearly $500m that “are still not properly understood”.

Asked by Mt Gox to look into the matter in March last year, the Tokyo Metropolitan Police were not able to begin their investigation until three months later. Even then, say people close to the investigation, the two police departments in charge — the cyber crime unit and the white-collar crime unit — did not properly share information.

The year long investigation, say legal experts, has culminated in an arrest that will allow police to hold Mr Karpelès without charge for 23 days.

If he continues to deny any wrongdoing during that time, police may alter the charge, and hold him for another 23 days.

The arrest of Mr Karpelès had been expected for over two weeks: Japanese journalists had been encamped outside his Tokyo home for several days. Footage of him being led from his home to a police car showed Mr Karpelès wearing a T-shirt and a baseball cap.

Mr Karpelès could, if found guilty, face up to five years in prison or a fine of as much as Y500,000.

Earlier this year a team of independent investigators suggest that raids on Mt Gox had begun more than two years before it collapsed and that it was practically cleaned out of coins by the summer of 2013.

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