They got him
SEC Charges Former Bitcoin-Denominated Exchange and Operator With FraudSEC Charges Former Bitcoin-Denominated Exchange and Operator With Fraud
FOR IMMEDIATE RELEASE
2018-23
Washington D.C., Feb. 21, 2018 —
The Securities and Exchange Commission today charged a former bitcoin-denominated platform and its operator with operating an unregistered securities exchange and defrauding users of that exchange. The SEC also charged the operator with making false and misleading statements in connection with an unregistered offering of securities.
The SEC alleges that BitFunder and its founder Jon E. Montroll operated BitFunder as an unregistered online securities exchange and defrauded exchange users by misappropriating their bitcoins and failing to disclose a cyberattack on BitFunder’s system that resulted in the theft of more than 6,000 bitcoins.The SEC also alleges that Montroll sold unregistered securities that purported to be investments in the exchange and misappropriated funds from that investment as well.
“We allege that BitFunder operated unlawfully as an unregistered securities exchange. 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. We will continue to focus on these types of platforms to protect investors and ensure compliance with the securities laws,” said Marc Berger, Director of the SEC’s New York Regional Office.
“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,” said Lara S. Mehraban, Associate Regional Director of the SEC’s New York Regional Office.
The SEC’s complaint, filed in federal district court in Manhattan, charges BitFunder and Montroll with violations of the anti-fraud and registration provisions of the federal securities laws. The complaint seeks permanent injunctions and disgorgement plus interest and penalties.
The SEC’s investigation was conducted by Daphna A. Waxman, Daphne Downes, and Valerie A. Szczepanik in the New York Regional Office. Ms. Waxman and Ms. Szczepanik also are members of the SEC’s Distributed Ledger Working Group and the Enforcement Division’s Cyber Unit. The litigation will be led by Dugan Bliss. The case is being supervised by Lara S. Mehraban.
In a parallel criminal case, 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. The SEC appreciates the assistance of the U.S. Attorney’s Office and the Federal Bureau of Investigation.
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US Gov’t Indicts Founder Of Long Defunct Crypto Exchange BitFunderThe US Securities and Exchange Commission (SEC) and Department of Justice (DOJ) have officially leveled charges against the founder of the now non-operational Bitcoin-dominated exchange BitFunder, Jon E. Montroll, Wednesday Feb. 21.
The SEC released a press statement Wednesday stating that they have charged Montroll, also known as Ukyo, with operating BitFunder as an unregistered securities exchange, defrauding the users of said exchange, and making “false and misleading statements in connection with an unregistered offering of securities.”
The SEC alleges that both BitFunder and its founder Montroll defrauded exchange users by “misappropriating their bitcoins”, operated as an unregistered securities exchange, and failed to disclose a cyberattack which led to the loss of over 6,000 bitcoins.
In 2013, hackers exploited a weakness in BitFunder’s programming code to falsely credit themselves with over 6,000 bitcoins. In an effort to recuse himself of the responsibility of having lost what was then about $720,000, today worth over $60 mln, Montroll denied the success of the hackers, and additionally provided false balance statements to SEC investigators.
The formal complaint filed by the SEC charges Montroll with violations of the anti-fraud and registration provisions of US federal securities laws. According to the press release, ”[t]he complaint seeks permanent injunctions and disgorgement plus interest and penalties.”
The DOJ also announced today Feb. 21, that Montroll has been arrested and taken into custody by the federal government. The DOJ has charged Montroll with two counts of perjury and one count of obstruction of justice. The counts of perjury and obstruction carry maximum sentences of 5 and 20 years, respectively.
Investor protection remains a priority concern for the federal government in these proceedings. Marc Berger, Director of the SEC’s New York Regional Office stated:
“...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. We will continue to focus on these types of platforms to protect investors and ensure compliance with the securities laws.”
BitFunder ceased trading on Nov. 14, 2013 amid complaints about delayed and frozen withdrawals of funds, following the August hack. Adding to BitFunder’s woes from the hack, the exchange went bankrupt after, following a ban on US traders, American traders left the platform in droves.
At a senate hearing earlier this month, SEC Chairman Jay Clayton noted that, so far, every ICO-issued token the SEC has observed is likely a security under US law, regardless of how the issuer refers to or markets the token. As of December, 2017, Clayton noted that not a single ICO had registered their tokens with the SEC.
