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Shuttered Exchange BitFunder Founder Charged With Fraud, Perjury

Last Updated March 4, 2021 5:05 PM
Gerelyn Terzo
Last Updated March 4, 2021 5:05 PM

The US securities regulator has charged the now-shuttered BitFunder with attempting to hide information about a major hack. Meanwhile, the US Attorney’s Office for the Southern District of New York simultaneously charged BitFunder founder,  37-year old Jon E. Montroll of Texas who also ran digital wallet service WeExchange Australia, with two counts of perjury and obstruction of justice. He faces decades in prison for the combined charges.

Chief among the charges by the SEC is that former bitcoin exchange BitFunder failed to disclose that hackers stole 6,000 bitcoins from customers on the BitFunder platform, worth an estimated USD 70 million in today’s terms, that BitFunder was unable to cover. The hackers did so by exploiting a weakness in the exchange’s code.

The hack occurred in July 2013, and Montroll allegedly misled regulators by testifying then that the exchange’s systems were successful at blocking it. He went to great lengths to conceal the breach, even transferring some of his personal bitcoin to disguise the losses. Meanwhile, after misrepresenting the health of the exchange’s balance sheet, he allegedly lied to regulators yet again, saying he learned of the hack only after regulators contacted him.

The combined charges levied against the exchange and Montroll include operating an unregistered securities exchange, defrauding investors and “making false and misleading statements” about the “unregistered offering of securities.”

“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,” according to the SEC’s New York regional office director Marc Berger.

Serious Crime

Meanwhile, Manhattan Federal Prosecutor Geoffrey Berman along with William Sweeney, a director in the New York field office of the Federal Bureau of Investigation (FBI), announced Montroll  was taken into custody. He was charged with perjury and obstruction of justice. The FBI official referred to Montroll’s actions as a “serious crime.”

Montreal was apprehended for allegedly giving false testimony to the SEC and was scheduled to appear in court on Feb. 21. The attorney’s office said:

“[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.  These charges signify that we will use the full force of the federal criminal law to protect the integrity of the SEC’s investigative process.”

According to social media posts , BitFunder closed in 2013, the same year that the hacks occurred. At the time, Reddit user Ukyo (according to the federal complaint Montroll is aka Ukyo) asked users to “hold off on conspiracy theories.”

Featured image from Shutterstock.