Investigators in Tokyo say that MtGox had a negative balance sheet six months before its collapse in February 2014.
The remarks were made following the weekend arrest of Mark Karpeles, the exchange’s former CEO. He is suspected of fabricating account balances and illegally funneling funds to his other businesses and for personal use.
According to The Japan Times, the sources said that MtGox was processing withdrawals by drawing from other customer funds in August 2013. As of March 2013, the exchange held roughly ¥3.8 billion ($30.65 million) in assets under its care, including bitcoins and cash generated from exchange fees.
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Within five months, however, liabilities exceeded total assets, which caused significant delays in withdrawals. Prior to the final days before the collapse, there was casual suspicion of insolvency due to the delays, but not alarmingly more than other exchanges in the highly unregulated environment.
The delays contributed to what was a “MtGox premium”, whereby the BTC/USD exchange rate was consistently several dollars higher than elsewhere. Traders were willing to pay less for dollars, which took much longer to withdraw and carried a level of risk, versus bitcoins, which at the time, were successfully withdrawn in near real-time.
Fiat withdrawal delays gradually intensified, and observers began analyzing metrics of the queue. In the final days before collapse, requests to withdraw bitcoin were not being fulfilled either. The disparity in prices relative to other exchanges was thus reversed, the price of bitcoin on MtGox shifting lower, eventually plummeting to $135. This was the price of the last trade on MtGox before trading ceased and the exchange went offline.
What remains to be determined if the disappearance of company assets was a result of external hacking, as claimed by Karpeles, or if it was an inside job, as police allege.