When Mt. Gox filed for bankruptcy on February 28, 2014, approximately 850,000 bitcoins were missing — drained over years by external hackers through compromised keys and transaction malleability exploits. Two weeks later, 200,000 BTC were located in cold wallets that had been set aside separately. The missing coins were the result of a sustained external theft, not internal fraud — a fact that would take nearly a decade and multiple international investigations to fully establish.

The criminal case against me, however, was not about the missing bitcoins. The prosecution never charged me with stealing them. Instead, the charges centered on how I had managed the exchange's finances during its operation — specifically, an automated trading mechanism and fund transfers between company and personal accounts.

At 5:00 AM on August 1, 2015, officers from the Tokyo Metropolitan Police Cyber Crime Division arrived at my home and placed me under arrest. The initial charge was unauthorized creation and use of private electromagnetic records (Penal Code Article 161-2). The allegation: that I had accessed the Mt. Gox trading system and manipulated data to inflate my own account balance.

I was taken to Manseibashi Police Station, near Akihabara — a small police station that would be my home for the next four and a half months.

Re-arrest — August 21, 2015

Twenty days later, before the initial detention period expired, I was re-arrested on a second charge: embezzlement in the course of business. The allegation was that I had embezzled approximately ¥321 million (~$2.6 million) of customer deposits from the Mt. Gox bank account.

In the Japanese system, re-arrest is a common prosecution tactic. Each arrest resets the detention clock, allowing the police to hold a suspect for up to 23 days before they must either charge or release. By re-arresting on new charges, the prosecution can extend pre-trial detention indefinitely — a practice that has drawn international criticism as "hostage justice."

Indictment — September 11, 2015

The Tokyo District Public Prosecutors Office formally indicted me on the embezzlement charge.

Third Arrest — Late October 2015

I was arrested a third time on additional embezzlement charges — alleging that on three separate occasions between September and December 2013, I had transferred funds from the company bank account to my personal account, totaling approximately ¥20 million.

Transfer to Kosuge — December 16, 2015

Manseibashi was a small police station with shared cells — I was held alongside a yakuza who received visits from his wife and child, people involved in drug trade, and various others. During the active arrest periods (August 1 to September 11, and another roughly 20 days after the later re-arrest), daily interrogations sometimes lasted up to eight hours. I lost approximately 35 kilograms during my four and a half months there.

Because I did not admit to the charges, I was placed under a contact ban — forbidden from receiving visits or sending and receiving letters, on the grounds of "risk of destruction of evidence." In the Japanese detention system, there are no phone calls. The only means of outside contact are visits (time-limited, with a guard present) and letters (read and screened in both directions by the authorities). Both were denied to me. This is standard treatment in Japan for anyone who does not confess — another facet of what critics call hostage justice.

After four and a half months at Manseibashi, I was transferred to the Tokyo Detention House in Kosuge — a large facility in northeastern Tokyo that houses pre-trial detainees and convicted prisoners. This would be my home for the next seven months. Kosuge was a fully solitary environment — a cell of roughly seven square meters, lights that never fully turned off. But the interrogations had stopped, and I actually gained about 5 kg there.

In January 2016, I obtained permission to have a calculator — a rare exception for detainees. Armed with this and the 20,000+ pages of case documents the prosecution had disclosed, I spent weeks cross-checking their financial claims against the company's actual accounting records.

What I found undermined the core of their embezzlement case. The prosecution's accounting of the transfers between my personal account and the company account was incomplete — they had counted the transfers out but not the transfers in. Mt. Gox's revenue in 2013 had exceeded ¥3.5 billion, and the funds I had moved were properly recorded as loans by the company's accountants, with corresponding repayments. I had also paid company expenses using my personal credit card, creating a legitimate loan/reimbursement relationship.

When I presented these calculations, the prosecution had to revise their approach. Their original theory of straightforward embezzlement was no longer tenable.

On July 14, 2016 — after 11 months and 13 days in detention — I was released on bail of ¥10 million (~$94,500). Family, friends, and supporters pooled the funds.

Bail for foreign nationals in Japan is exceptionally rare. The prosecution's willingness to not oppose bail was in part a consequence of my having dismantled their original embezzlement theory from inside detention. Bail conditions included a prohibition on leaving Japan and a ban on contacting approximately 30 people connected to Mt. Gox.

I had entered detention weighing over 100 kg. I left weighing roughly 65 kg.

Even after my release on bail, the prosecution continued to reshape the case. Through supplementary indictments and amendments to existing charges, additional counts were filed and the scope of the allegations was revised.

On March 10, 2017, the prosecution filed a request to add subsidiary charges. Most significantly, they added a charge of aggravated breach of trust under Companies Act Article 960 — a provision that applies specifically to company directors who act against their company's interests. The allegation was that I, as representative director of MTGOX Co., Ltd., had diverted company funds to unrelated ventures — specifically the acquisition of Shade 3D, a 3D graphics software company, for approximately ¥315 million, as well as approximately ¥6 million in personal expenditures.

This charge attacked the same underlying transfers from a different legal angle than the embezzlement charge: where embezzlement framed them as stealing customers' money, breach of trust framed them as a director betraying his duty to the company by misusing corporate resources. This dual-charging approach is a common prosecutorial strategy in Japanese criminal law.

By the time the trial began, the charges had been refined through this indictment process. Two categories of charges went before the court:

1. Unauthorized creation of electromagnetic records

The court found that the events leading to the conviction occurred in three stages:

Stage 1 — Bitomat acquisition ($150,000, August 2011): In August 2011, Tibanne acquired Bitomat, a small Bitcoin exchange that had lost 17,000 BTC due to system bugs. This meant inheriting a 17,000 BTC obligation to users — bitcoins that no longer existed on the blockchain. I immediately converted this BTC-denominated debt into a USD-denominated debt to secure the bitcoins: on August 9, 2011, I entered $150,000 into the MagicalTux account balance to purchase approximately 18,000 BTC from users, then deleted 17,500 BTC from the account.

Stage 2 — 300,000 BTC increase (November 2011 – April 2012): In November 2011, a French bank account used by MTGOX Co., Ltd. was administratively frozen, making approximately ¥100 million inaccessible. Fearing the company's cash flow would stop, I added 300,000 BTC to the MagicalTux account balance over 8 transactions between November 2011 and April 2012 — bitcoins that did not exist on the blockchain. These were sold to users for approximately $1.3 million, and then deleted from the account.

Stage 3 — $33.5 million increase (February – September 2013): As a result of the 300,000 BTC increase, non-existent bitcoins were now circulating among users on the trading system. To "recover" these 300,000 BTC, I entered a total of $33.5 million into the account balance over 21 transactions between February 14 and September 27, 2013, purchased approximately 300,000 BTC from users for roughly $29.77 million, and deleted them from the account.

This third stage — the $33.5 million — was the specific act for which I was convicted. Community researchers independently identified the trading pattern and named it the "Willy Bot." Its existence was not in dispute; the question was whether it constituted a crime.

The prosecution's argument: The entries created fictitious account balances and were used to purchase bitcoins with money that didn't exist. This was data manipulation — a crime regardless of intent.

The defense's argument: The mechanism was an "obligation exchange" — a way to manage pre-existing BTC debts inherited from before and during the early operation of the exchange. The process had been suggested by Jed McCaleb himself. In late 2010, before my takeover, 80,000 BTC had been stolen and sent to what became the infamous 1Feex address. The Bitomat acquisition added another 17,000 BTC of phantom debt. As Bitcoin's price rose, the gap between what the exchange owed users in BTC and what it actually held widened unpredictably. The automated system converted this BTC-denominated debt into USD-denominated debt — it did not increase the company's total debt, it simply stabilized it by moving from a volatile asset to a stable one. The defense argued this was a protective measure to keep the exchange solvent for its users, not a fraud.

2. Embezzlement

The prosecution alleged that between September and December 2013, I transferred approximately ¥341 million of customer deposits from Mt. Gox's bank account to my personal account for personal use.

The defense's argument: These were legitimate transactions within a loan/reimbursement relationship. I had frequently paid company expenses from my personal credit card, and the company repaid these through bank transfers. The amounts were recorded by certified accountants. Mt. Gox lacked a formal system for executive expense reimbursement, so transactions flowed in both directions between personal and company accounts — but they netted out.

The trial opened on July 11, 2017 at the Tokyo District Court before Judge Nakayama Tomoyuki. The courtroom seated only 39 people; over 100 journalists and observers competed via lottery for 21 public seats.

I pleaded not guilty to all charges.

The trial extended over multiple hearings across nearly two years. The prosecution presented evidence and called witnesses; the defense challenged the financial analysis and argued that the prosecution fundamentally misunderstood how a cryptocurrency exchange operated.

December 12, 2018 — The prosecution delivered its closing arguments and requested a sentence of 10 years imprisonment.

December 27, 2018 — I made my final statement to the court, maintaining my innocence while apologizing for the bankruptcy and its impact on users.

Judge Nakayama delivered the verdict on March 15, 2019.

On the data manipulation charge, the judge ruled that inflating account balances — regardless of intent — constituted unauthorized creation of electromagnetic records. The court found the conduct "eroded the credibility of crypto exchanges" and that there was "no justification for such an abuse of information."

On the embezzlement charges, the judge ruled in my favor on multiple grounds. First, the court found that funds deposited by users into MTGOX Co., Ltd.'s designated bank accounts belonged to MTGOX Co., Ltd., not to the users directly — rejecting the prosecution's primary theory that I had stolen customers' money. Second, even treating the transfers as movements of company funds, the court found they were properly accounted for as short-term loans. The company's tax accountant testified that in small owner-operated companies without accounting staff, formal loan agreements are rarely drawn up. I had been paying company expenses through personal credit cards — by March 2014, Tibanne owed me ¥115 million in outstanding short-term loans. Given MTGOX Co., Ltd.'s rapidly growing revenue (¥962 million in September 2013, ¥4.97 billion in November, ¥5.35 billion in December), the court found there was a realistic possibility of repayment. The transfers were loans, not embezzlement.

On the aggravated breach of trust charge, the court found insufficient evidence of intent to damage the company. Regarding the Shade 3D acquisition specifically, the judge ruled that the investment could be viewed as potentially profitable for the company — it was a reasonable business decision for a director to make, not a betrayal of fiduciary duty.

The acquittal on the primary charges of embezzlement and breach of trust — in a system where the conviction rate after indictment exceeds 99% — was as close to vindication as the Japanese legal system typically allows. The prosecution did not appeal the acquittals — itself an unusual outcome, as Japanese prosecutors routinely appeal not-guilty verdicts.

The suspended sentence meant no prison time, provided no new offenses were committed during the four-year suspension period.

I appealed the data manipulation conviction, challenging it on both legal interpretation and factual grounds. The defense raised three core arguments:

1. The defendant had full authority over the system

As sole director and sole shareholder of MTGOX Co., Ltd., I held all decision-making authority. The trading system was operated by the company, and I — as the company's only decision-making organ — had the authority to determine what records the system produced. Under Japanese criminal law doctrine, "unauthorized creation" of electromagnetic records requires either (a) creating records without any authority over the system, or (b) a person with limited authority abusing it to create false records. Neither applied: I was not an unauthorized outsider, nor a subordinate abusing limited access — I was the system operator.

Legal scholarship supports this position. Leading commentators on criminal law state that when the system operator — who can freely determine record contents — creates records, it does not constitute unauthorized creation, even if the content is fictitious. The legislators who drafted the law also indicated it was intended to cover only unauthorized outsiders or subordinates abusing limited data-entry authority, not system owners acting within their own systems.

2. The records were not "false"

The original verdict found that the records showed a USD balance increase that did not correspond to an actual bank deposit, and therefore the records were fictitious. The appeal challenged this interpretation.

The Mt. Gox trading system was built on multiple interconnected database tables, each with its own function. The User_Wallet table recorded the current account balance at a point in time — it did not represent or certify that a specific bank transfer or Bitcoin transaction had occurred. Those facts were recorded in separate tables. The balance could change for many reasons within the system's internal logic, and the court itself acknowledged this — finding that "it cannot be denied that balances on the trading system could increase or decrease without actual USD deposits."

If the balance record only certifies "current balance" and not "balance caused by a bank deposit," then a balance entry that doesn't correspond to a bank deposit is not inherently false — it accurately reflects the system's internal state.

3. The "company's will" cannot be separated from its sole decision-maker

The original verdict convicted on the basis that the actions contradicted "the company's will." But the court defined this as an abstract concept — essentially "what the company should have wanted" based on its terms of service and external obligations — separate from the actual will of the company's decision-making organ.

The appeal argued this was a fundamental error of law. A company's will is determined by its organs (directors, board, shareholders). Whatever decision the organ makes is the company's decision — even if that decision is later found to violate laws or contracts. The legality of the decision is a separate question from whether it represents the company's will. The court's approach — treating the company as having a "will" independent of its only director — would create an impossibly broad standard where any business decision that an outside observer deemed inappropriate could be criminalized as data manipulation.

As the brief stated: if the same actions by an individual sole proprietor would not constitute a crime, there is no rational basis for criminalizing identical actions simply because they were performed through a one-person company.

Outcome

June 11, 2020 — The Tokyo High Court rejected the appeal and upheld the original conviction and sentence.

January 27, 2021 — The Supreme Court dismissed the final appeal. The conviction became final: 2 years 6 months, suspended for 4 years.

The suspended sentence expired without incident in January 2025.

While the criminal case focused on my management of the exchange, a parallel investigation — driven largely by independent researchers — worked to identify who actually stole the bitcoins.

Kim Nilsson and the WizSec team spent years tracing the stolen coins through the blockchain, following transactions from Mt. Gox wallets to addresses controlled by the BTC-e exchange.

July 25, 2017 — Two weeks after my trial began, Greek police arrested Alexander Vinnik at a beach resort, acting on a US warrant. Vinnik was charged as co-administrator of BTC-e, accused of facilitating over $4 billion in criminal transactions. The US indictment explicitly linked him to the theft of bitcoins from Mt. Gox.

June 9, 2023 — The US Department of Justice publicly named Alexey Bilyuchenko and Aleksandr Verner — two Russian nationals accused of stealing 647,000 BTC from Mt. Gox between September 2011 and May 2014. Bilyuchenko was also charged as co-administrator of BTC-e alongside Vinnik. After nine years, the thieves had names.

In parallel with the criminal case, the question of what happened to the creditors' money followed its own path.

Under Japanese bankruptcy law, creditor claims were valued in yen at the date of filing — February 2014, when Bitcoin traded around $400. By 2017–2018, Bitcoin's price had risen to $10,000–$20,000, meaning the approximately 200,000 BTC recovered in cold wallets were now worth far more than the total claims. Under bankruptcy rules, the surplus would go to the shareholder — which was me, through Tibanne.

In April 2018, I posted an open letter on Reddit: I did not want that money. I advocated for civil rehabilitation, a process under Japanese law where creditors would receive their fair share at current market value rather than being capped at the 2014 yen valuation.

In June 2018, the Tokyo District Court approved the conversion from bankruptcy to civil rehabilitation.

In 2024 — over ten years after the bankruptcy filing — creditor repayments finally began. Bitcoin and Bitcoin Cash distributions started flowing to creditors through designated exchanges. The process that began with 850,000 missing bitcoins was reaching its conclusion.

The conviction on the data manipulation charge rests on legally questionable ground. The court constructed an abstract "company's will" separate from the actual will of the sole director and sole shareholder — the only person who constituted the company's decision-making organ. In Japanese corporate law, the decision-making organ's decision is the company's decision. The court instead defined the company's will as what it "should have wanted" based on its terms of service and external obligations, then found the actions contradicted that abstraction. As the defense argued, this standard creates an incoherent distinction: a sole proprietor performing the same actions would not be criminally liable, but performing them through a one-person company suddenly becomes a crime.

On the facts, the three-stage sequence makes clear this was not self-enrichment. The verdict itself found I gained no personal economic benefit. The most painful problem to manage was the 80,000 BTC deficit from the hack of Jed's server before my takeover — a hole that only grew as Bitcoin's price rose. The Bitomat acquisition added a smaller deficit, though Tibanne and Mt. Gox already had well over 30,000 BTC in accumulated profit at that point, largely covering that hole. The automated mechanism converted volatile BTC debt into stable USD debt to keep the exchange solvent.

In its last year of operation, Mt. Gox generated well over $20 million in profit. The $33.5 million USD deficit created by the obligation exchange was significant but not unbearable on that trajectory — it would have been absorbed over time. Dealing with constant crises — the inherited hack, the Bitomat acquisition, the French bank freeze, the US seizure of $5 million by the Department of Homeland Security — resulted in decisions that caused consequent but manageable losses. Had the external hacking not continued and further assets not been frozen, the exchange could have traded its way out of the hole. These were crisis management decisions made under extreme pressure to keep the exchange running for its users.

The embezzlement acquittal — and the prosecution's unusual decision not to appeal it — implicitly acknowledges the core of the case was weak. The court got that part right: the transfers were loans, MTGOX Co., Ltd.'s revenue was growing rapidly, and repayment was realistic.

The concealment — modifying account data when an employee noticed, later spreading entries across multiple accounts — undercut the "legitimate business decision" framing. If the mechanism was truly above-board, why hide it? But operating quietly to avoid a bank run is different from operating secretly to commit fraud. And "looks bad" should not be sufficient for criminal liability when the defendant had full authority over the system, gained nothing personally, and was trying to keep the company solvent for its users.

The suspended sentence — 2.5 years against a requested 10 — suggests the court itself was not fully comfortable with the conviction. The case ultimately highlights a gap in Japanese criminal law: statutes written for document forgery and unauthorized computer access were applied to the novel question of what a cryptocurrency exchange operator can and cannot do within their own system. That question still has no clear answer.