Apr 20, 2015 · 2 minutes

A report claims that most of Mt. Gox's bitcoins disappeared long before the beleaguered exchange shut down in 2014 and was embroiled in controversy.

Mt. Gox shut down after it neared bankruptcy, allegedly lost almost $365 million worth of Bitcoin, and its chief executive used the exchange's funds to pay for his rent, a 3-D printer, a robot, and a racing version of the Honda Civic.

As WizSec, the self-proclaimed Bitcoin security specialists investigating Mt. Gox's shutdown, said in an executive summary of their most recent findings:

Most or all of the missing bitcoins were stolen straight out of the MtGox hot wallet over time, beginning in late 2011. As a result, MtGox operated at fractional reserve for years (knowingly or not), and was practically depleted of bitcoins by 2013. A significant number of stolen bitcoins were deposited onto various exchanges, including MtGox itself, and probably sold for cash (which at the bitcoin prices of the day would have been substantially less than the hundreds of millions of dollars they were worth at the time of MtGox's collapse).
The claim that Mt. Gox was operating at a fractional reserve lends support to earlier reports that the exchange's bitcoins were stolen as part of an inside job. As Pando wrote when Japanese authorities first made that claim in January:
In the front page report, [Yomiuri Shimbun] cites sources close to the ongoing police investigation and claims that only 7,000 of the 650,000 missing bitcoin – approximately 1 percent – disappeared as the result of an outside cyberattack. The police 'highly suspect' that the remaining 99 percent was stolen by a (still unnamed) individual or individuals 'familiar with the exchange system.'
This wouldn't be the first time someone involved with Mt. Gox was accused of illicit activity. Just consider chief executive Mark Karpeles: In addition to using the exchange's funds for personal use, he's also been accused of founding the Silk Road marketplace, or at least having some involvement with the service.

Mt. Gox founder Jed McCaleb is also accused of having his family members sell off more than $1 million worth of a digital currency used by Ripple, an online exchange he founded (and later departed) after parting ways with Mt. Gox.

It's not clear that either Karpeles or McCaleb were involved with the missing bitcoins. Perhaps Karpeles didn't know Mt. Gox was running off a fractional reserve. Maybe someone else was able to steal the bitcoins. Neither WizSec nor the authorities investigating Mt. Gox have identified anyone as a suspect.

But it is clear that Mt. Gox was either spectacularly mismanaged -- which would be bad enough, given the sheer amounts of money with which it was trusted -- or an outright fraud that was used as at least one person's illegal piggy bank.

[illustration by Brad Jonas]