[2018-02-22] SEC charges former bitcoin exchange and its founder with fraud

[bbc.reporter]

It appears that the SEC will come after past exchanges if they gather enough evidence that fraud was committed in the past, no matter if an exchange has already closed.

This might be the beginning of a hunt or maybe even a persecution of any exchange they decide to judge of wrongdoing.

To keep the government away from our affairs, the exchanges should make it their responsibility to regulate themselves, because if not, the government will impose stricter rules that might make it impossible to have an open environment for trading.



The Securities and Exchange Commission charged former cryptocurrency exchange BitFunder and its founder with fraud Wednesday.

The regulator alleged that BitFunder and founder Jon E. Montroll ran the operation as an "unregistered securities exchange" and defrauded users of that exchange, according to a SEC statement.

"Platforms that engage in the activity of a national securities exchange, regardless of whether that activity involves digital assets, tokens, or coins, must register with the SEC or operate pursuant to an exemption," Marc Berger, director of the SEC's New York Regional Office, said in a statement.

Montroll also failed to disclose a cyberattack on the exchange's system and a bitcoin theft that happened as a result, according to the SEC statement.

Read the full article https://www.cnbc.com/2018/02/21/sec-charges-former-bitcoin-exchange-and-its-founder-with-fraud.html

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[jjacob]

The SEC seems to be taking its own sweet time to act against fraudulent exchanges. Montroll closed its shutters in 2013. The SEC has filed charges in 2018. In an age where money and criminals disappear in days after swindling investors, such delayed investigations and actions will hardly put fear in their hearts.

[CryptoBry]

I am now sure that SEC people are believer of the adage that "it is better to be late than never" in pursuing cases against criminals in the cryptocurrency sphere. I always hate the over-involvement in the government of our affairs but in cases where innocent victims are defrauded of their money then I believe that any legal move against the perpetrators should be pursued with all vigor.  This should be serving as a strong warning to many scam artists who are planning to snatch others out of their money. The arm of the law will eventually find you all.

[DooMAD]

It appears that the SEC will come after past exchanges if they gather enough evidence that fraud was committed in the past, no matter if an exchange has already closed.

This might be the beginning of a hunt or maybe even a persecution of any exchange they decide to judge of wrongdoing.

To keep the government away from our affairs, the exchanges should make it their responsibility to regulate themselves, because if not, the government will impose stricter rules that might make it impossible to have an open environment for trading.

If they were persecuting former exchanges for merely existing and serving their clients normally, then naturally that would be cause for concern.  But if evidence of fraud is clear, then what's wrong with having the perpetrators investigated and charged?  That's better than leaving people with the impression that using crypto grants you some special dispensation to rip people off.  Fraud is fraud and exchanges shouldn't be above the law in this regard.  And why would the exchange no longer operating have any bearing at all?  Crimes from the past are still crimes.  I can't imagine someone getting away with muder just because they claimed they aren't in that line of work anymore.   

[bbc.reporter]

The SEC seems to be taking its own sweet time to act against fraudulent exchanges. Montroll closed its shutters in 2013. The SEC has filed charges in 2018. In an age where money and criminals disappear in days after swindling investors, such delayed investigations and actions will hardly put fear in their hearts.

But it should because it might mean that the SEC is following all the fraud and scams in the cryptospace, and thoroughly studies them before filing charges.

If Cryptsy's Paul Vernon thinks that he's out of the hook, he should be careful. The same goes for the past illegal ICOs and crowdsales that were organized in America.

[orions.belt19]

I am now sure that SEC people are believer of the adage that "it is better to be late than never" in pursuing cases against criminals in the cryptocurrency sphere. I always hate the over-involvement in the government of our affairs but in cases where innocent victims are defrauded of their money then I believe that any legal move against the perpetrators should be pursued with all vigor.  This should be serving as a strong warning to many scam artists who are planning to snatch others out of their money. The arm of the law will eventually find you all.

Even with the presence of numerous exchanges, the SEC is still compelled to assure the security and protection of its citizens. They have within their power to create legal actions and pursue scammers. Once a country's citizens are affected and become victims of a scam, then the government will step in and start to interfere with the affairs of exchanges.

This might be the beginning of a hunt or maybe even a persecution of any exchange they decide to judge of wrongdoing.

To keep the government away from our affairs, the exchanges should make it their responsibility to regulate themselves, because if not, the government will impose stricter rules that might make it impossible to have an open environment for trading.

This is what may likely happen, however if this is what should be done in order to get rid of scammers, then I'd rather support these kind of government regulations. Instead of having an open market for traders, it may be too open to the point where scammers would be able to exploit us.

[Theb]

The SEC seems to be taking its own sweet time to act against fraudulent exchanges. Montroll closed its shutters in 2013. The SEC has filed charges in 2018. In an age where money and criminals disappear in days after swindling investors, such delayed investigations and actions will hardly put fear in their hearts.

But it should because it might mean that the SEC is following all the fraud and scams in the cryptospace, and thoroughly studies them before filing charges.

If Cryptsy's Paul Vernon thinks that he's out of the hook, he should be careful. The same goes for the past illegal ICOs and crowdsales that were organized in America.

This is what we need as the government is now aware of fraudulent acts happening in the web, this cyberspace criminals might think that they are some kind of untouchable people stealing money. Also the first target would exchanges where many anomalies have been done. From sudden stop of operations to the exchanges running their users' money all the  SEC has to do it to follow the money and they will have enough evidence to prove what their wrongdoings are.

[superjeyy]

It appears that the SEC will come after past exchanges if they gather enough evidence that fraud was committed in the past, no matter if an exchange has already closed.

This might be the beginning of a hunt or maybe even a persecution of any exchange they decide to judge of wrongdoing.

To keep the government away from our affairs, the exchanges should make it their responsibility to regulate themselves, because if not, the government will impose stricter rules that might make it impossible to have an open environment for trading.

If they were persecuting former exchanges for merely existing and serving their clients normally, then naturally that would be cause for concern.  But if evidence of fraud is clear, then what's wrong with having the perpetrators investigated and charged?  That's better than leaving people with the impression that using crypto grants you some special dispensation to rip people off.  Fraud is fraud and exchanges shouldn't be above the law in this regard.  And why would the exchange no longer operating have any bearing at all? Crimes from the past are still crimes.  I can't imagine someone getting away with muder just because they claimed they aren't in that line of work anymore.   

Everything that DooMAD said is on point. Wrongdoings especially those affecting the credibility and reliability of a person or a company should not just be forsaken. Despite the time that passed, justice should be served accordingly so that people won't just feel that they can do anything with cryptocurrency. Even though the aspect of decentralization is evident in cryptocurrency, punishment should still be served for those who uses this platform to deceit others. Situations like this also gives a wrong impression on the reputation of cryptocurrency. This is why people often think that cryptocurrency would always lead to a scam or something no good.

[jjacob]

The SEC seems to be taking its own sweet time to act against fraudulent exchanges. Montroll closed its shutters in 2013. The SEC has filed charges in 2018. In an age where money and criminals disappear in days after swindling investors, such delayed investigations and actions will hardly put fear in their hearts.

But it should because it might mean that the SEC is following all the fraud and scams in the cryptospace, and thoroughly studies them before filing charges.

If Cryptsy's Paul Vernon thinks that he's out of the hook, he should be careful. The same goes for the past illegal ICOs and crowdsales that were organized in America.

That is true, but there is an adage - justice denied is justice delayed. Think of the Mt Gox probe, proceeding at its own sweet pace. If the depositors who lost their bitcoins at their exchange receive the dollar value of their holdings after 5 years, you can hardly expect them to be satisfied.
The action does act as a deterrent and potential swindlers may think twice if they feel that the law will eventually catch up with them. This however does not help the existing victims.

[numizmat]

As alleged in the complaint, Montroll defrauded exchange users by misappropriating their bitcoins and failing to disclose a cyberattack on the exchange’s system and the resulting bitcoin theft.  We will continue to vigorously police conduct involving distributed ledger technology and ensure that bad actors who commit fraud in this space are held accountable.
The second charge relates to a hacking incident in 2013, when 6,000 Bitcoins were stolen – this would now be worth over $60 million. At the time, the founder, Jon E. Montroll, is alleged to have provided a false balance statement, effectively denying that the theft ever took place: BitFunder Charged With Fraud By US SEC

[jhenfelipe]

Though it was in the past already, I still see it better than nothing. That at least will give justice for those who become a victim. Time doesn't erase the crimes people committed and the damage that has been done, so what the SEC did is fair enough imo.

[optherium]

Luckily we live in an age where information travels around the world as fast as news becomes available. People may easily check social media and boards like this one when investigating companies they're interested in doing business with. In addition, as we move away from centralization, this may become less of a problem.

[figmentofmyass]

It appears that the SEC will come after past exchanges if they gather enough evidence that fraud was committed in the past, no matter if an exchange has already closed.

This might be the beginning of a hunt or maybe even a persecution of any exchange they decide to judge of wrongdoing.

we should clarify that this is not a "bitcoin exchange" in the traditional sense. bitfunder used BTC as a funding mechanism, but they were a securities exchange (dealing in stocks and such), not a bitcoin exchange. that's why the SEC got involved. in contrast, the SEC and CFTC have both suggested that they don't have jurisdiction over spot exchanges under current laws.

The SEC seems to be taking its own sweet time to act against fraudulent exchanges. Montroll closed its shutters in 2013. The SEC has filed charges in 2018. In an age where money and criminals disappear in days after swindling investors, such delayed investigations and actions will hardly put fear in their hearts.

i'm pretty sure this is about scaring the current generation of exchanges into compliance. the SEC chairman and others have repeatedly suggested that the vast majority of ICOs are unregistered security offerings. that means that bitfunder in 2013 = poloniex, bittrex, etc in 2018. it's a big word of warning to the current generation of token exchanges not to defraud their customers.

[bbc.reporter]

The SEC seems to be taking its own sweet time to act against fraudulent exchanges. Montroll closed its shutters in 2013. The SEC has filed charges in 2018. In an age where money and criminals disappear in days after swindling investors, such delayed investigations and actions will hardly put fear in their hearts.

But it should because it might mean that the SEC is following all the fraud and scams in the cryptospace, and thoroughly studies them before filing charges.

If Cryptsy's Paul Vernon thinks that he's out of the hook, he should be careful. The same goes for the past illegal ICOs and crowdsales that were organized in America.

That is true, but there is an adage - justice denied is justice delayed. Think of the Mt Gox probe, proceeding at its own sweet pace. If the depositors who lost their bitcoins at their exchange receive the dollar value of their holdings after 5 years, you can hardly expect them to be satisfied.
The action does act as a deterrent and potential swindlers may think twice if they feel that the law will eventually catch up with them. This however does not help the existing victims.

I know, and the system is not perfect. But if the scammers think that they are, as I already said, off the hook then they should start looking for a good lawyer. That was the whole point of my post.

I do agree that it's sometimes bad the victims have to wait, but who said everything is supposed to be based in dollar amounts? If possible, the total number in bitcoin should be repaid. If I lost 5 bitcoins in Mtgox, then I expect to get 5 bitcoins back.

[Qartersa]

It appears that the SEC will come after past exchanges if they gather enough evidence that fraud was committed in the past, no matter if an exchange has already closed.

This might be the beginning of a hunt or maybe even a persecution of any exchange they decide to judge of wrongdoing.

To keep the government away from our affairs, the exchanges should make it their responsibility to regulate themselves, because if not, the government will impose stricter rules that might make it impossible to have an open environment for trading.



The Securities and Exchange Commission charged former cryptocurrency exchange BitFunder and its founder with fraud Wednesday.

The regulator alleged that BitFunder and founder Jon E. Montroll ran the operation as an "unregistered securities exchange" and defrauded users of that exchange, according to a SEC statement.

"Platforms that engage in the activity of a national securities exchange, regardless of whether that activity involves digital assets, tokens, or coins, must register with the SEC or operate pursuant to an exemption," Marc Berger, director of the SEC's New York Regional Office, said in a statement.

Montroll also failed to disclose a cyberattack on the exchange's system and a bitcoin theft that happened as a result, according to the SEC statement.

Read the full article https://www.cnbc.com/2018/02/21/sec-charges-former-bitcoin-exchange-and-its-founder-with-fraud.html

The fraud here is just because of the fact of the unregistered securities exchange? If that is the case, well I think it is only a malum prohibitum because non-registration, per se, is not a crime on its own. It is made a crime only by fiction of law but not because they have defrauded its clients pertaining to the latter's investments. Simply put, this is more just like a procedural lapse on the part of BitFunder and founder Montroll, and due to such, he was already charged of fraud.

[bbc.reporter]

@Qartersa. Are you a lawyer? It appears you know your legal stuff hehehe.

In any case, if you are, I want to know how this case would affect all the other unregistered exchanges that are still operating to this day. I am talking about US based exchanges like Bittrex and Poloniex.

I assume they are in the grey area, unless I'm mistaken.