$9 Million Bitcoin Scam Defrauded More Than 250 Victims

March 28, 2019 12:40 UTC

Jon Montroll, the man behind BitFunder and WeExchange, was charged with fraud last February. He pleaded guilty last July, and will be sentenced in April. Montroll reportedly hid the theft of over 6,000 BTC from his platform in 2013, and went to great lengths to hide the hack – even lying to investigators. His lawyers are seeking probation, but prosecutors are pushing for a sentence of at least 27 months.

Government Struggles to Identify Remaining Victims

The SEC has reportedly sent a letter to the Southern District of New York, the federal court where Montroll will be sentenced, indicating that about 230 of 256 victims have been identified by the government. Names and e-mail addresses of the remaining 26 people are apparently elusive for the government, who needs the information in order to structure a restitution plan.

The damages estimated by the SEC are far less than what our readers, who may have only recently come to crypto, would expect. The price of Bitcoin on July 26th, 2013 was roughly $94. The Bitcoins lost by the 256 identified victims total around 2,258, meaning that the actual financial loss is in the neighborhood of $212,000. If Montroll were required to repay the victims in Bitcoin, the cost of doing so today would be over $9 million.

From Service to Ponzi in One Hack

After the hack took place, Montroll used his own personal Bitcoin stash in an effort to staunch some of the losses. When the SEC first began investigating his unregulated exchange, he lied to investigators, which was perhaps his biggest mistake. According to the criminal complaint, he told investigators that the company had managed to deal with the attack. He never called the authorities or informed users of the attack, much like the situation at Mt. Gox, which had a similar situation and lost far more money. The attack allegedly took place at the hands of a group of BitFunder users, and the result was a ponzi-style business:

Montroll used bitcoin deposits from new users to fund withdrawal requests after the cyberattack. […] In early November 2013, users began experiencing problems withdrawing bitcoins from the WeExchange Wallet, which Montroll publically attributed to technical problems with BitFunder’s system and bitcoin software in general. In reality, however, BitFunder did not hold sufficient bitcoins to cover amounts owed to its users due to Montroll’s misappropriation and the cyberattack and bitcoin theft. Montroll shut down BitFunder on November 14, 2013.

WeExchange was another outfit controlled by Montroll, incorporated in Australia and geared toward that market. WeExchange handled deposits for BitFunder, and funds between the two companies were “commingled.”

BitFunder was an early attempt at what BTCJam and Bitbond later did successfully.

Montroll would have been in trouble regardless if the hack ever happened. His exchange was unregistered. The company issued “Ukyo Notes,” an unregistered security that represented shares in a lending company. “Ukyo” was also Montroll’s handle online. To top it off, the SEC accuses him of misusing customer deposits throughout the business’ operation. Any of these things can get you prison time, but lying to investigators is a good way to ensure it.

It may be cold comfort to get roughly 2% of your money back ($94 will currently buy you about .02 BTC), but we urge anyone who used this platform that hasn’t been contacted by the government to reach out to the government instead. 26 people are apparently eligible for compensation, and the figure of $212,000 seems very achievable.

Last modified: March 28, 2019 12:28 UTC

@bitillionaire

P. H. Madore has written for CCN since 2014. Please send breaking news tips or requests for investigation to bitillionaire+phm@gmail.com. He lives in Maine, USA. A single father of four young children, he does not discourage financial donations, provided they do not come with strings attached.