Operator of Shuttered Bitcoin Investment Platform BitFunder is Arrested | Coinspeaker

Operator of Shuttered Bitcoin Investment Platform BitFunder is Arrested

| Updated
by Darya Rudz · 3 min read
Operator of Shuttered Bitcoin Investment Platform BitFunder is Arrested
Photo: Roman Schmitz / Flickr

The Securities and Exchange Commission charged former cryptocurrency exchange BitFunder and its founder with fraud. Jon Montroll tried to cover up stolen currency and lied about knowing when theft occurred.

Jon Montroll, the operator of a shuttered bitcoin-denominated exchange BitFunder, was arrested on Wednesday. The Justice Department and the U.S. Securities and Exchange Commission charged the owner of BitFunder, known as  “Ukyo”, with fraud and lying to U.S. regulators.

Jon Montroll was charged with fraud and making false statements to U. S. regulators to hide the fact that hackers stole more than 6,000 of his customers’ Bitcoins. He was arrested by the office of Manhattan U.S. Attorney Geoffrey Berman.

“As alleged, the defendant repeatedly lied during sworn testimony and misled SEC staff to avoid taking personal responsibility for the loss of thousands of his customers’ bitcoins,” Geoffrey Berman said.

The details of the case date back to an earlier period in bitcoin’s history when websites like BitFunder were more common.

According to prosecutors, Montroll operated two online Bitcoin services, BitFunder and WeExchange. Bitfunder was a platform that permitted users to buy and sell virtual “shares” of different digital currency-related enterprises in exchange for Bitcoin, while WeExchange Australia Pty. Ltd. functioned as a Bitcoin depository and currency exchange. All WeExchange and BitFunder users’ Bitcoins were held in a common account.

“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 2013, hackers exploited a weakness in BitFunder’s programming code which enabled those behind the attack to credit themselves funds. This resulted in the withdrawal of roughly 6,000 bitcoins from WeExchange, rendering the services insolvent. BitFunder shut down in 2013.

According to prosecutors, Montroll denied that the exploit the hackers used had been successful. He also falsely claimed that the software problem “was corrected immediately, whenever the system started having problems, and I caught on to what was happening,” according to court documents.

Lara S. Mehraban, Associate Regional Director of the SEC’s New York Regional Office said in the statement: “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.”

Montroll is accused of further misleading SEC staff after being confronted by SEC investigators, according to statements.

“While [Montroll] admitted that the Balance Statement was the product of his manual intervention in the WeExchange system, he claimed to have discovered the success of the Exploit only after the SEC had asked him about it during his first day of testimony and to have no knowledge of the chat with Person-1,” the Department said.

Montroll was scheduled to appear in federal court in Texas on Wednesday. The most serious charge carries a maximum prison term of up to 20 years. A lawyer for him couldn’t be immediately located.

The charges highlight uncertainty surrounding whether or not bitcoin and other cryptocurrencies should be classified as securities. It’s unclear whether the coins are utility tokens or securities that would fall under the SEC’s oversight, and many start-ups have barred U.S. residents from officially participating in token sales as a result.

During the last 24 hours, Bitcoin lost 8,91% of its value. According to CoinMarketCap, its current price is $10 109,50.

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