Q&A With Mt. Gox’s Karpelès: What Went Wrong?

http://blogs.wsj.com/japanrealtime/2014/06/27/qa-with-mt-goxs-karpeles-what-went-wrong/

by rdl • 12 years ago

101 90 12 years ago

blogs.wsj.com

afreak• 12 years ago

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• 12 years ago

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.

danielweber8• 12 years ago

It's possible he just didn't want to pay the guy enough, but . . . yeah. A brick-and-mortar bank hires a lot of appsec folks to review their code, for lots of money, and they at least have the legal system to fall back on. That's after they pay market rates for labor to write the code in the first place.

If I was in charge of MtGox security I would probably get an ulcer. One mistake and it's over, forever.

mantraxD2• 12 years ago

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• 12 years ago

Are you creating multiple throwaways just to troll users on this site? https://news.ycombinator.com/user?id=mantraxC https://news.ycombinator.com/threads?id=mantraxB

mantraxD2• 12 years ago

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.

rdl• 12 years ago

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• 12 years ago

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

argc• 12 years ago

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).

AJ007• 12 years ago

For those effected, the two are not distinguishable. If the bank robs you or loses your money, it is still a loss. When it comes to the law, neither is "I don't know" perhaps gives some lenience at sentencing.

When your business involves holding money on deposit for people, you have a very high moral and legal standard to follow. Unfortunately the very legal leverage and fractional reserve lending by financial institutions makes that line very blurry. A single technical misstep and you are now an insolvent ponzi scheme. Being lazy or "over your head" in this area is like laying down in front of a moving truck.

US laws relating to money laundering and finance are very strict, accidents and lapses still lead to convictions. I don't know anything about Japanese law. I'll take a page from the BNP Paribas case and say that because Mt Gox used US dollars it falls under US jurisdiction and must also follow US law, not just Japan's.

kordless• 12 years ago

Any decent amount of incompetence is likely to be viewed as a 'scam' by others. When you invert trust, in any portion of the business, you get what is generally viewed as 'privacy'. Bitcoin is essentially trusted privacy. Connect that notion of 'trusted privacy' to a business/controlling entity dealing with people's money, and you get fear. A 'scam' or fraud is defined as wrongful or criminal deception intended to result in financial or personal gain. Good reasons to fear.

A violation of trust when dealing with people's money is a perfect way to describe what happened at Mt. Gox, but it doesn't necessarily mean it was scam. That is only possible because Bitcoin.

saalweachter• 12 years ago

This comes up a lot in the skeptic community: we know X is not actually psychic/finding ghosts/healing people, but are they an outright, knowing fraud, or do they believe it themselves?

canvia2• 12 years ago

The Willy Report makes it seem like there was more at play than simply incompetence: http://willyreport.wordpress.com/

sirdogealot3• 12 years ago

The willy report depicts whale buy bots that were buying large amounts of Bitcoin on a drip feed styled system.

The "investigator" of the free willy report got it wrong.

nikcub4• 12 years ago

my assessment based on the statements of others that knew him better was that he got bored with MtGox very quickly and was distracted with side projects, such as the bitcoin foundation, bitcoin ATM's and the bitcoin cafe he was building downstairs from MtGox (apparent sunk cost of $2M+).

the tech guy that Roger Ver bought in when Gox was at crisis point talked about how despite the state of emergency Karpeles would leave the office mid-work-day to go and pick some silly color scheme for the new bitcoin cafe.

This is days/hours before Gox was going under.

The other part was inability to delegate and lack of trust in the code that wasn't his own. Despite his lack of interest in Gox, he still was the central (and choke point) in all site updates (which he merged manually, no source control) which explained the lack of development.

In getting MtGox into trouble I don't think he was intentionally fraudulent, just a bad case of dev project ADD. In terms of the lying and cover up, he definitely was - but seems like the type of person who doesn't realize how serious that is.

In terms of culpability, the DOJ indictment with his name on it (which i'm 95% certain exists) won't distinguish between incompetence/ignorance and willful fraud.

swalsh• 12 years ago

"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.

VMG• 12 years ago

I think somebody ever wrote about an interview experience for an IT position at MtGox on reddit - it was very close to what you imagined.

konradb• 12 years ago

Do you have a link to that? It sounds like an interesting read!

viraptor• 12 years ago

You don't need to look at the books for that. Imagine you got that offer. Millions going through the accounts that you have to protect, secure in online and offline environment, monitor, ideally have complete control over access logs, think about relevant company certifications that may be required because you deal with money one way or another. And you need to have some practical banking knowledge on top of that. If anything goes as bad as it did, it could be your name in that article instead of the company owner.

With no inside knowledge of the books, how many people would you think need to be on the security side of that company and how much would you request to get paid? I'd definitely go with (10+)x amount a very well paid person gets in other companies.

rayiner• 12 years ago

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

patio11• 12 years ago

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.)

mattm• 12 years ago

Didn't have the money yet apparently spent a million dollars developing his Bitcoin Cafe in the lobby of the building.

ipsin• 12 years ago

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.

moe2• 12 years ago

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• 12 years ago

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.

dublinben• 12 years ago

If they couldn't raise enough operating funds from the revenue they were seeing, they needed to raise their fees.

curun1r• 12 years ago

To lose someone else's money means you actually lost it. To 'lose' someone else's money means you lost it into your own account.

The previous poster was suggesting that the money hadn't been necessarily been lost to thieves but that Karpelès, himself, had stolen at least a good portion of it and then used some of it for bribes.

moe2• 12 years ago

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.

sillysaurus3• 12 years ago

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/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...

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...

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

guiomie• 12 years ago

Could he have been inflating the price to recover the loss from the stolen bitcoins ? This way he could have kept the company a float ...

danielweber8• 12 years ago

But he was short N bitcoins. He should have tried to drive the price down so he could rebuy those N bitcoins.

sparkzilla3• 12 years ago

The complete Mt Gox timeline: http://newslines.org/mt-gox/

hanley• 12 years ago

Wow Newslines is a cool idea, thanks for pointing that out.

fchollet2• 12 years ago

I understand the anger coming from those who lost sizeable amounts of coins due to MtGox's mistakes, but with an undergoing police investigation, wouldn't the rational attitude here be to wait for the fog of war to clear up and the investigation results to be announced?

Karpeles does not have a serious history of fraud. We don't know yet what happened with MtGox. Wait and see.

Cyther6068• 12 years ago

but with an undergoing police investigation

What gave you that idea? There's no police investigation ongoing in Japan, or anywhere else for that matter. Karpeles is looking at Japanese bankruptcy proceedings, he is not facing criminal charges. He was invited to testify in Texas in light of probable criminal wrongdoing, but he turned down the offer. The only major "investigation" of Karpeles is happening on Reddit and HN.

Crito• 12 years ago

Governments should reserve judgement until a conviction has been secured, but I do not believe that it is reasonable to demand that private individuals do the same. A presumption of innocence is about limiting the circumstances in which governments can restrict the rights of somebody, but it makes little sense outside of courtrooms.

Consider: Richard Nixon was never convicted. Does that mean I can't/shouldn't call him a criminal piece of shit?

sirdogealot3• 12 years ago

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• 12 years ago

The willy report was quickly debunked as being FUD.

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

gwern• 12 years ago

I don't remember any 'debunking'. What I remember was some half-assed speculation that maybe possibly it could be that the Willy bot was a dark pool (even though it's not clear this explained all the anomalies with that account).

nikcub4• 12 years ago

The 'debunking' was an alternate theory that didn't hold up to real scrutiny.

If the idea was a 'dark pool' to obfuscate their trades, not signal the market, spike the price, or avoid front running - then they failed spectacularly on every account.

the bots made up a large proportion of total value, they traded in a predictable pattern and were spotted quickly within days (and then taken advantage of by other traders), had unlimited buy demand which continued through a 2x+ increase in the btc price - defeating the purpose of spreading the order out.

it also doesn't explain why the bots trades continued while the API was down.

and finally, connecting to a dark pool should still show normal trading patterns, which the bot patterns were completely unlike (hence them being spotted).

canvia2• 12 years ago

Source for the debunking? As far as I know nothing official has been released regarding these allegations and most likely nothing will be confirmed until after the Japanese bankruptcy proceedings.

aragot• 12 years ago

paid his irc staff to lie to users

Founders, how do you deal with your support teams when you've understood you'd be going bankrupt?

I'm sure there are plenty of honest people who would do the right thing; but I guess there are other founders who remain stubbornly optimistic until they're way beyond the failure point. At least because entrepreneurship requires a serious optimism disorder ;)

stcredzero• 12 years ago

serious optimism disorder

Acronym?

user242• 12 years ago

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.

streptomycin2• 12 years ago

I don't know, I think it's probably difficult for any of us to imagine how we'd react to losing half a billion dollars.

chicagomint• 12 years ago

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...

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?

notastartup• 12 years ago

so did he take all the bitcoins for himself?

homersapien• 12 years ago

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

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

BillyParadise• 12 years ago

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

fmavituna• 12 years ago

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.

pachydermic• 12 years ago

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

trevorcreech• 12 years ago

Tibanne is his old company, and is actually the entity which owns MtGox. I suspect that about page is from a couple years ago.

danielweber8• 12 years ago

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• 12 years ago

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.

briantakita• 12 years ago

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

Hmmm. Freudian slip?

Q&A With Mt. Gox’s Karpelès: What Went Wrong?

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