Mark Karpeles, the disgraced CEO of the now defunct bitcoin exchange MtGox, who was arrested by Tokyo police last year, may have spent a fortune of the funds he allegedly embezzled on prostitutes and escorts. Karpeles was accused of pocketing a large sum of deposits after MtGox filed for bankruptcy after losing 850,000 bitcoins to data theft.

French-born Karpeles had spent an unspecified sum of money on prostitutes, Japan's Yomiuri newspaper reported. On the other hand, news agency Jiji Press, said that police found he had access to several venues that were involved with "sexual services".

The police are also investigating the purchase of a luxury bed worth ¥5.7m (£27,527, $42,000) by Karpeles after the bankruptcy was filed. In February last year, MtGox was shut down after it claimed it lost 850,000 bitcoins -- valued at ¥48bn -- from its digital vaults. Subsequently, the company filed for bankruptcy protection.

Initially, Karpeles and his fellow employees said the bitcoins could have been hacked or a bug in the Gox software could have led to the demise of the server, which led to the data theft. Karpeles had then blamed a suspicious US hand behind the attack, who he claimed, wanted to destroy MtGox.

Days later the former CEO stated that he had found some 200,000 bitcoins inside some cold storage that he had "misplaced". Authorities got suspicious and started tracking Karpeles and his associates, but by then, most company executives were protected by bankruptcy laws.

The 30-year-old, was finally arrested for the first time by Japanese law enforcers in August, who scrutinised his personal accounts to find a transfer of ¥20m worth of client money to his personal account. It was suspected that he may have created ¥120m worth of fake bitcoins. He was later re-arrested for allegedly siphoning about ¥321m of bitcoin deposits. It was also alleged that the former CEO had manipulated data and transferred funds to firms that were under his control between 2011 and 2013.

While Karpeles was the only person with access to the exchange's computer systems, the movement of funds has given authorities a reason to take him into custody, however, his attorney has claimed that he is innocent and is being wrongly held.