The head of the failed Japan-based bitcoin exchange Mt. Gox was arrested in Tokyo Saturday on suspicion of inflating his cash account by $1 million, authorities said.
Mark Karpeles, 30, is suspected of accessing the exchange's computer system in February 2013 and inflating his account, Japanese police said. If found guilty, the France-born Karpeles could face up to five years in prison, or a fine of up to 500,000 yen ($4,000).
Karpeles' lawyer said his client denies wrongdoing, the Kyodo News agency reported.
Stolen by hacking
Mt. Gox went offline early last year. Karpeles said then that tens of thousands of bitcoins worth several hundred million dollars were unaccounted for, and suggested they were stolen by hacking.
The relationship between the lost bitcoins and the inflated account was not immediately clear.
Japanese TV showed a T-shirt-clad Karpeles, with a baseball cap pulled low over his face, being led into a police car from his home in Tokyo.
Japanese authorities have acknowledged they were baffled by the Mt. Gox case because they had never dealt with possible crime dealing with bitcoin.
Experts also said it might be difficult to take action because of the absence of laws over virtual currencies.
The bitcoin community worldwide has been outraged by Mt. Gox's apparent incompetence.
The Mt. Gox debacle served to highlight the perils of bitcoin transactions. Bitcoins are not regulated by central banks or other financial authorities. Bitcoin proponents have long said Mt. Gox is just an exception.
Legislation is in the works in California, for instance, to regulate businesses that hold bitcoin and other virtual currency in a way similar to banks. New York has also issued rules overseeing bitcoin.