SEC charges BitFunder founder with fraud, has him arrested

SEC charges BitFunder founder with fraud, has him arrested

- in All News, Cryptocurrencies, Regulation
USA SEC

The US Securities and Exchange Commission (SEC) has charged Jon Montroll, also known as Ukyo, founder of the now defunct cryptocurrency platforms BitFunder and WeExchange with fraud and making “false and misleading statements in connection with an unregistered offering of securities.”  

According to the SEC press statement, “Montroll defrauded exchange users by misappropriating their bitcoins and failing to disclose a cyberattack on the exchange’s system and the resulting bitcoin theft” and lied to regulators.

In addition to those charges, the U.S. Attorney’s Office for the Southern District of New York today filed a complaint against Montroll for perjury and obstruction of justice during the SEC’s investigation. Montroll was arrested.

According to the U.S. Attorney’s Office, Montroll operated two  two online bitcoin services: WeExchange Australia and BitFunder.com.  WeExchange functioned as a bitcoin depository and currency exchange service.  BitFunder facilitated the purchase and trading of virtual shares of business entities that listed their virtual shares on the BitFunder platform. In the summer of 2013 hackers exploited a weakness in BitFunder’s code and withdrew approximately 6000 bitcoins from WeExchange. Back then the stolen bitcoin cost about $720 000 and now – around $60 million. As a result of the hack Montroll and the companies did not have the bitcoins to cover the user funds.

In November of the same year, however, Montroll provided sworn testimony to the SEC’s New York Regional Office in which he lied, saying the hack was unsuccessful and the exchange system stopped them from withdrawing the stolen bitcoins. Montroll also showed a fake screenshot that claimed a Balance Statement reflecting “6,679.78 BTC” on hand in the platforms, as of the end of October. Later Montroll lied to SEC again, admitting that he manipulated the Balance Statement and he discovered the theft only after the regulator asked him about it.

The two counts of perjury carry a sentence of five years in jail each. If found guilty of obstructing of justice, Montroll may spend up to 20 years in prison.

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