Pay the Devil in Bitcoin

by Adelstein, Jake

  Karpelès was a sickly child. It was no easy task for his mother, Anne Robert Karpelès, to raise him. She was a geologist who later became a real estate agent, working full-time to support the two of them, and sometimes having to leave him in his grandmother’s care. Home for mother and son was in Dijon and Paris most of the time.

  He was also a temperamental child. For instance, he convinced himself that he had tapeworms, and he checked the Internet for how to tackle them. One website declared that eating raw onions was the cure. These he ate for three solid days without telling his mother about it—until she couldn’t help noticing.

  Once, when he ran away from home—something he did often from an early age—the local gendarmerie found him at the Quai d’Orsay in Paris, where he explained that he’d run off because his mom had tried to force him to vacuum the living room.

  Grandma Mark, on her side, would punish and torment him in a variety of strange ways. She once forced him to comb his hair ninety times on one side of the head, and she repeatedly said she wished he had been born a girl.

  When Karpelès was three, he was given his first computer. It was a Sinclair ZX Spectrum, a home computer that was popular in France at the time. If you are one of those people who can remember when RadioShack sold the TRS-80, the Spectrum might be familiar: 128 kilobytes of RAM with a tape recorder. Karpelès started to create basic programs on it immediately. Between the ages of three and seven, he was supplied by his mother with computer games, which he would try to modify for fun. He would also dismantle household goods such as calculators to find out how they worked.

  Karpelès was fascinated by his computer and felt very much at home coding. But being an exceptionally bright child had its downside. Public school didn’t go well because he was so far ahead of the others in his class. His teacher scolded him for counting to a hundred when she was only teaching the class to count to thirty. He was already able to read and write at a young age.

  Anne Karpelès says, “I wasn’t happy with his teachers, who seemed more concerned about keeping everyone at the same level rather than helping Mark fulfill his potential.” She put him in a school for gifted children, where classes were based on ability rather than age. Some classes would have six-year-olds studying alongside twelve-year-olds.

  Private school, however, was expensive, and when she lost her job, with her son then ten, Anne had to put him back in public school. He didn’t fit in and was bullied and considered strange. He retreated from the world and became depressed.

  Sometimes he got into trouble. When he was arrested as a teenager for some minor offense, he asked the police as a joke to put him in handcuffs because he wanted to feel as if he was in a movie. Life to him was becoming unreal.

  His worried mother decided to send him to the Prieuré de Binson, a Catholic boarding school in Marne, for the next five years of his secondary education, from about age eleven to sixteen. At seventeen, after failing his first year at the Lycée Claude Bernard, he announced that he’d had enough. Anne convinced him that if he spent two years at a vocational school in Paris he could get a degree in electrical engineering and earn a decent living. Thus he didn’t go to university and study computer engineering as most French software developers usually do.

  Karpelès didn’t fit in at the vocational school either. He had issues with the tougher kids, and he was let down by people he thought were friends. Life in a tiny apartment shared with his mother gave him little privacy. He left home and decided to live on the streets. For weeks he wandered Paris, distributing flyers for a cybercafe in the neighborhood of Châtelet.

  In France, where most apartment buildings have electronic doors that require codes to get in, Karpelès would simply watch people punching in their numbers and then let himself in at night. He found that he could usually get a decent night’s sleep on the third floor of buildings with elevators, since almost no one would climb the stairs that far. “Wooden stairs were better than stone,” he explains. The money he’d made during the day allowed him to buy food at night. He spent some of his meager funds in cybercafes.

  It wasn’t very long before the police noticed him, and he was taken to a halfway house for homeless youths.

  Karpelès stayed there for a few weeks and then found a roommate. This was L, a guy he met over the Internet who was a member of Manga4All, a Japanese comic book fan club.

  During his forays on the Internet, Karpelès had become fascinated with Japan—at least the futuristic anime version of it he took to be reality. Anime is a form of animation originating in Japan that depicts fantastic characters in vibrant graphical backgrounds, often with fantasy, horror, or science fiction themes.

  To him, Japan seemed like a place where he could finally fit in, where a cyber geek would be appreciated—if he ever got there. Japan and coding: these were the two things he knew he loved.

  One of his other interests was playing Counter-Strike, an online multiplayer game in which the player acts as either a terrorist or a counterterrorist. Karpelès decided to e-mail the French host of the website where he played, Stéphane Portha, and ask him if he needed any development programmers.

  The response was immediate and enthusiastic.

  In October 2003, Linux Cyberjoueurs—the company owned by Stéphane Portha—formally hired Karpelès. According to Karpelès and other sources, Portha was a pioneer of cybersquatting on domain names ending with “.fr”—for France. Cybersquatting was once a popular moneymaking scheme in which people registered attractive domain names before reselling them at a higher price to interested parties. Karpelès worked as a technician responsible for creating programs and dealing with administrative tasks for the Linux-based system the company had in place.

  For a short time, he was happy. He had a job and he was being paid to code.

  “I stayed one year and nine months at that company,” Karpelès said. “But I had a few little issues with the owner. I left the job because I was tired of being exploited. I also wanted to work in another environment. I wanted to be freer.”

  Portha was reluctant to let Karpelès leave. He had become an essential part of the operation. According to Karpelès, they had a huge argument when he announced he was quitting. Portha allegedly warned him, “If you leave this company, I will make your life a living hell.”

  Karpelès, unwittingly or dim-wittingly, helped make that true. In the process of leaving the firm, he transferred some client data on his employer’s servers to other servers in France and the United States. He also took over a domain name and redirected it to his own online address. Domain names in those days could be worth a lot. Karpelès offered Portha $1,667 for the domain name and the data he had diverted. Portha didn’t accept the offer and instead filed a criminal complaint.

  Karpelès was still only twenty years old when this occurred. He didn’t seem to understand that there can be lasting problems after a commercial divorce. But, then again, he had always been a little out of touch with reality.

  After Linux Cyberjoueurs, he worked at Fotovista, the operator of Pixmania, before moving to Israel, where he stayed nine months.

  Selling computer services there was a good idea, since Israel is a center of technology. But terrorist attacks were not something he had planned for. When the nearby electric power plant was blown up, his web-hosting business was blocked for twelve hours. Twelve hours of downtime in cyberspace is a very long time. In almost a single day, his business went down in flames, metaphorically and almost literally.

  Still, Karpelès was undeterred. “Failure can help you improve. You can’t be successful if you don’t keep trying.”

  In 2006, he returned to Paris with only one bag on his shoulder. All his other possessions were lost by the airline. For a few months, he lived in an apartment with an older friend and benefactor.

  Then, thanks to someone he met online, Karpelès got a job at Nexway, a telecommunications firm known at the time as Téléchargement.fr. He started working there as a developer and rapidly moved up in the c
ompany. He left his friend’s place, relocating to 78 Avenue Félix Faure, in Paris’s 15th arrondissement.

  “The work at Nexway was great, and most of my colleagues were nice. I had a good relationship with the CEO, even after I left the company. Of all the professional experiences I’ve had, those years with Nexway were the most enriching—on all levels.”

  Christophe Eblé, the chief architect there, formed a very positive opinion of him. In an interview he told us, “Mark is an extremely talented guy who has an unbelievable knowledge of almost every part of computer programming, analysis, and architecture. Mark is not only a talented programmer but a generous, thoughtful person as well!”

  In the summer of 2007, Karpelès decided to make a trip to Japan with a dozen friends. “Just before the journey, I invited everyone to my place and stuffed them with quiche and apple pie, on the pretext that I needed to empty my fridge before going away for a month.” It was one of the happiest times in his life.

  The trip was organized by people who mostly went by their online names: “Hakkai,” “BombStrike,” “Ookami,” among others. Karpelès isn’t sure he can even remember their real names.

  “We were divided into two groups. Mine stayed at a guesthouse in Saitama Prefecture, near Omiya. During this month in Japan, I traveled a good deal. I went to Nara, Kyoto, and Osaka. I visited almost all the temples in the region, including several historical spots. I walked a lot and took a hell of a lot of photos.”

  When he returned to France, he continued his work at Nexway. But when his grandmother died in 2009, leaving him only her cat, he flew back to Tokyo, this time to work there. He’d arranged to have himself transferred to Nexway’s newly acquired Japanese company, known at the time as CoGen Media, now called Degica.

  Karpelès arrived in Japan on June 18, 2009, with his cat, Tibane, and moved directly into a new apartment at Fleur Tsuzuki 102—his first address in Tokyo.

  Karpelès loved Japan.

  In particular, he liked the quality of life. He appreciated the fact that he could buy things in convenience stores twenty-four hours a day (rare in Paris, where on Sunday even the supermarkets often close early) and that all sectors of society, but notably the delivery and transportation systems, were extremely efficient.

  “In Japan, you get your health insurance card in twenty minutes at City Hall. In France, it’s more complicated. I had to wait two hours to get one there.”

  Both France and Japan have public health services that are relatively inexpensive and make basic health care affordable and easily accessible. This was another plus.

  He also liked that if he left his laptop on a park bench, it was likely to be returned to him. In Paris, he said, people would simply have stolen it. (Of course, someone who leaves a laptop on a park bench expecting to retrieve it later may not be the best person to handle cybersecurity for a firm dealing in hundreds of millions of dollars, but that’s another story.)

  Karpelès admired the Japanese for their politeness. It was this, he figured, that allowed him to integrate into their society, and he learned to respond to it in a similar way. Even on a crowded subway, people behaved considerately. In France, it was the exact opposite. “Every morning when I took the metro in central Paris, I took precautions, always keeping a tight hold of my bag.”

  But the thing he liked most about the country was its anime culture. Akihabara, a mecca for electronic equipment, was also home to various spin-offs of that artificial world. One establishment he frequented was a café where the waitresses dressed as old-fashioned maids and addressed their customers as “Master.” Later on, he’d spend a lot of time at a less savory place near JR Akihabara Station, a step away from his favorite electronics store and a kebab shop he enjoyed.

  A couple of months after his arrival, Karpelès quit his job at Nexway’s Japanese branch to create his own company, Tibanne Ltd., which was registered on October 29, 2009. He named the company after the cat (with only one n) he had inherited from his grandmother and taken with him to Japan.

  The company provided web hosting and software development, which he took care of himself.1 At the same time, he was hired on by other firms, including Degica, as a sort of cyber ronin (a lordless samurai).

  In January 2011, Jed McCaleb, a programmer, entrepreneur, and the owner of mtgox.com —an online exchange for the card game Magic: The Gathering—approached Karpelès to see if he would like to buy his business. Founded seven months before, Mt. Gox was already a bitcoin enterprise.

  It was a prospect that interested Karpelès because he had been fascinated by bitcoin since 2010 when William Waisse—a French friend and client of his based in Peru—asked if he could pay him for his services in bitcoin. It had occurred to Karpelès that, with the right platform, he could create a bitcoin exchange that would make buying, selling, and using the virtual currency much easier.

  Karpelès was in. He acquired Mt. Gox while he was still working in Degica’s office. The purchase seemed to be a good deal to him at the time. “What I’d bought, though,” he told us later, “was a lot like a treasure chest with a time bomb inside.”

  To him, bitcoin was an amazing innovation, which he felt could become a worldwide currency if there were the right trading center for it. In the rudimentary system that had been set up to buy, sell, and exchange Magic: The Gathering trading cards, he saw great potential.

  Of course, others would later joke, “Take a website made for exchanging playing cards and turn it into a platform trading millions’ worth of virtual currency—gee, what could possibly go wrong?”

  However, 2011 would turn out to be a tough year for the exchange, for Karpelès, and everybody in Japan. On March 11, the country was rocked by a colossal earthquake, a tsunami, and the triple meltdown of the nuclear power plants in Fukushima Prefecture. It seemed like the end of the world for a few days. The government kept silent, but Naoto Kan, the prime minister at the time, feared that the badly damaged Fukushima reactors would go off one after another, making it necessary to evacuate Tokyo.2 The Japanese economy itself seemed to be on the brink of disaster.

  Meanwhile, in response, the French embassy began organizing special flights back home for French citizens. Many took them during the panic that ensued due to the Japanese government’s apparent inability to contain the nuclear crisis. Karpelès was not invited to fly, since he was not registered at the embassy. Repeated advice from various people made him decide to go to Osaka for several days, but it wasn’t practical for work.

  In due course, the work with Mt. Gox started to expand. Soon Karpelès had no time for anything else. Around June 2011, he hired his first full-time employee, Adam Turner, a.k.a. Ashley Barr. It was necessary to have a support team in place, and Karpelès decided to rent an office on the fifteenth floor of the Cerulean Tower in Shibuya, a fashionable district in central Tokyo. “The advantage of being there was that we would have the use of meeting rooms, somewhere to chill out, and an office with everything we needed—tables, chairs, Internet. Rapidly, the support team led by Adam grew to include three new employees: C, N, and J.”

  In June that year, the site was hacked. It had been hacked before, but this time the intrusion was much more serious. Someone had gotten into the system and manipulated the account balances. The hacker—or hackers—was able to sell off all the bitcoins from people’s accounts, drive the market price down, and withdraw a few thousand bitcoins themselves.

  But Karpelès was able to keep it all together.

  “At the time, Mt. Gox’s withdrawal limit of $1,000 a day applied to bitcoins at the real time rate, so hackers wanted the rate to drop to be able to withdraw more,” he explained. “To do so, however, they crashed the Mt. Gox system and were unable to withdraw all our funds as part of their plan, because Neo futur [a friend in Peru] woke me up in the middle of the night and I was able to take the site off-line to stop the attack.”

  The damage could have been bigger if the hacker had access to anti–money laundering certified accounts. These wer
e accounts in which the user had provided verifiable ID and thus was allowed to withdraw up to $10,000 a day.

  The setback wasn’t permanent. Mt. Gox was highly profitable, and Karpelès had more money than he ever had before.

  He was also creating a family.

  He had married a Japanese woman, Kyoko, who worked at Degica, and together they had a child, Pierre. She left him in 2013 because, people close to her said, Karpelès was too busy with his work and never spent enough time with her. When she left Japan, she took Pierre with her. Karpelès became depressed. “It’s only after you’ve lost someone that you realize how important that person was.” It’s a commonplace sentiment but no less true for its unoriginality.

  It was not long after she left that he started to see a wide variety of women, some willing companions, some he paid to be with him. In Japan, where all sexual services besides vaginal penetration can be legally bought and sold, his behavior wasn’t so far outside the social norm. According to reports in the mainstream Japanese press, he spent over $170,000 of company money on credit card payments and women. On October 29, 2015, the Yomiuri Shimbun, the Sankei Shimbun, Asahi Broadcasting Corporation, and other major media all ran stories quoting the police saying that Karpelès had paid money to prostitutes.

  Karpelès often told his friends that he was sad that his wife had abandoned him and he was lonely—and horny.

  He was, however, well known for his fondness for pussy—both the feline kind and the female one. Sometimes those fondnesses overlapped. He made at least one girlfriend dress in a fluffy cat costume before sex.

  According to former lovers and friends, his sexual appetite is immense and his preferences unusual, leaning toward light S and M play, sometimes B and D. They say he has the ability to ejaculate large amounts of sperm at some velocity. While engaged in intercourse with the “cat woman”—a lady dressed in a whole-body kitten costume—apparently he had an orgasm that shot his sperm across the room and left a white stain on the side of his luxurious ¥6 million yen bed.