Employees confronted Mt. Gox chief about finances two years before bankruptcy

Some employees of the high-profile Bitcoin exchange Mt. Gox confronted the owner about proper accounting about two years before the company filed for bankruptcy protection in Japan, according to a story by Reuters.

The story cited three anonymous sources who said they participated in the discussion with Mt. Gox chief executive Mark Karpeles. About half a dozen employees confronted him in early 2012 by asking if the company, which functioned as an online brokerage and exchange for the Bitcoin virtual currency, was properly protecting the deposits from clients.

The exchange lost an estimated $27 million in cash and Bitcoins worth an estimated $450 million, according to the bankruptcy filing earlier this year. About a million traders entrusted the three-year-old firm to hold their money safely.

Reuters said that the employees worried that customer funds were being used to cover rising operating costs. Those costs included rent in a high-rise Tokyo building, gadgets such as a robot and a 3D printer, and a racing version of the Honda Civic imported from Britain for Karpeles. They said that Karpeles told the group that the customer money was not funding the business, but he declined to provide details. The employees suspected that expenses were being paid from the same bank account used for customer deposits.

Reuters said that Mt. Gox referred questions to its lawyers, who had no immediate comment.

Karpeles held an estimated 88 percent of the company.

Mt. Gox claimed in its Feb. 28 bankruptcy filing that hackers might have exploited a bug in the Bitcoin system to steal virtual currency from the exchange, but it has not explained why the $27 million in cash is missing. The company was handling an estimated $14 million in Bitcoin trading per month.