TOKYO (REUTERS/AFP) - The 32-year-old chief executive of defunct Mt Gox pleaded not guilty on Tuesday (July 11) to charges relating to the loss of hundreds of millions of dollars worth of bitcoins and cash from what was once the world's biggest bitcoin exchange.

Frenchman Mark Karpeles filed the plea in response to charges of embezzlement and data manipulation at the Tokyo District Court, according to a pool report for foreign journalists.

Mt. Gox once handled 80 per cent of the world's bitcoin trades but filed for bankruptcy in 2014 after losing some 850,000 bitcoins - then worth around half a billion US dollars - and US$28 million in cash from its Japanese bank accounts.

Karpeles reportedly then lived in an US$11,000-a-month penthouse and spent money lavishly, including on prostitutes.

In its bankruptcy filing, Tokyo-based Mt Gox blamed hackers for the lost bitcoins, pointing to a software security flaw.

Mt Gox subsequently said it had found 200,000 of the missing bitcoins.

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Prosecutors said Karpeles transferred around 340 million yen (S$4.12 million) from an account containing customer funds to an external account during September to December 2013, and increased the balance of the account via "improper operation" of Mt Gox's trading system, the Nikkei business daily reported on Tuesday, citing Karpeles' indictment.

Karpeles' defence told a pre-trial consultation that the remittance was within the scope of the firm's revenue and not the embezzlement of customer funds, the Nikkei reported. They added the increased balance was part of the administrative process of exchanging cash and bitcoins and therefore not illegal, the Nikkei said.

Karpeles told the court he was an information technology engineer.

"I swear to God that I am innocent," he said in Japanese to the three-judge panel hearing his case, according to the pool report.

The collapse of Mt Gox represented a major setback for bitcoin and badly damaged the image of virtual currencies, particularly among risk-averse Japanese investors and corporations.

But the bankruptcy also prompted Japan's government to decide how to treat bitcoin, and preceded a push by local regulators to licence virtual currency exchanges.

Japan this year became the first country to regulate exchanges at the national level, part of a government effort to exploit financial technology as a means of stimulating the economy.

Interest in bitcoin among Japan's legions of individual investors - encouraged by Tokyo's recognition of the virtual currency as legal tender - has spiked in recent months.

Still, institutional investors remain wary, say those running virtual currency exchanges in Tokyo. Japanese firms are also unenthusiastic: Only 4 per cent of large and mid-sized firms plan to use bitcoin, showed a Reuters poll last month.

The value of bitcoin is highly volatile. It hit a record high of US$2,980 last month.

Like other virtual currencies, such as Ethereum and Ripple, bitcoin has no central authority and relies instead on thousands of computers across the world that validate transactions and add new units to the system - technology known as blockchain.

Bitcoin can be traded on exchanges in the same manner as stocks and bonds. It has also become a mode of payment for some retailers, and a way to transfer funds without the need for a third party.

The former CEO of collapsed bitcoin exchange MtGox goes on trial on Tuesday (July 11) in Tokyo over the disappearance of hundreds of millions of dollars worth of the virtual currency from its digital vaults.

Frenchman Mark Karpeles - once the high-flying head of the world's busiest bitcoin trading platform, who reportedly lived in an US$11,000-a-month penthouse and spent money lavishly, including on prostitutes - is facing embezzlement and data manipulation charges.

The 32-year-old was first arrested in August 2015 and released on bail nearly a year later over allegations he fraudulently manipulated data and pocketed millions worth of bitcoins.

MtGox, which claimed it once hosted around 80 per cent of global bitcoin trading, shuttered in 2014 after admitting that 850,000 coins - worth around US$480 million at the time - had disappeared from its vaults.

The company initially said there was a bug in the software underpinning bitcoins that allowed hackers to pilfer them.

Karpeles later claimed he had found some 200,000 of the lost coins in a "cold wallet" - a storage device, such as a memory stick, that is not connected to other computers.

Tokyo-based MtGox filed for bankruptcy protection soon after the cyber-money went missing, leaving a trail of angry investors calling for answers and denting the virtual currency's reputation.

Karpeles, who said he is now working as an IT consultant, is active on social media and has commented on issues concerning bitcoin but not on details of his criminal case.

In the wake of the MtGox scandal, Japan passed a bill stipulating that all virtual currency exchanges must be regulated by its Financial Services Agency.

Virtual currencies are generated by complex chains of interactions among a huge network of computers around the world, and are not backed by any government or central bank, unlike traditional currencies.

Despite the demise of MtGox and concerns about security, bitcoin and hundreds of rival digital currencies are becoming increasingly popular and accepted by merchants worldwide.

Bitcoin has seen wild volatility during its short life, soaring from just a few US cents to around US$2,500 now, more than double its value just a few months ago.

Backers say virtual currencies offer an efficient and anonymous way to store and transfer funds online.

Critics argue the lack of legal framework governing the currency, the opaque way it is traded and its volatility make it dangerous.

There are also security concerns.

Bitcoin has suffered hacking incidents including one last year in which a major Hong Kong-based exchange Bitfinex suspended trading after US$65 million in the virtual unit was stolen.