Bitcoins exchange operator Jon E. Montroll has been charged by The Securities and Exchange Commission with fraud for running the operation as an “unregistered securities exchange.” The operator of the cryptocurrency investment platform was charged with lying to U.S. regulators to hide the fact that hackers stole more than 6,000 of his customers’ Bitcoins.In its lawsuit, the SEC also accused Montroll of defrauding users and making false and misleading statements. In addition to failing to disclose the cyberattack on BitFunder, he also sold unregistered securities that purported to be investments in the exchange and misappropriated funds from those investors, the SEC said.
Before the cryptocurrency began to develop, Montroll operated two online Bitcoin services,. BitFunder.com facilitated the buying and trading of virtual shares of businesses listed on its platform, 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, according to federal investigators. “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.
The U.S. Attorney’s Office for the Southern District of New York also filed a complaint against Montroll Wednesday for “perjury and obstruction of justice during the SEC’s investigation,” according to the statement. Obstruction of justice can carry a penalty as high as 20 years in prison.
BitFunder closed just a one year after its launch in December 2012. The site’s shutdown followed the Global Bitcoin Stock Exchange shutdown in October 2012 and btct.co’s shutdown in October 2013. The regulator has stepped up its crackdown on cryptocurrency-related fraud in the last eight months, with a series of investor bulletins, stock trading suspensions and initial coin offering halts.
Just last Friday, the commission temporarily suspended trading in three tiny stocks due to questions about recent announcements involving blockchain and cryptocurrency investments. And in late January, the SEC halted and froze the assets of AriseBank, which claimed to have raised $600 million in the largest initial coin offering to date.
SEC Chairman Jay Clayton has also spoken out more about cryptocurrencies. He said earlier this month in a hearing before the Senate Banking Committee that federal financial agencies may ask Congress for increased legislation on cryptocurrency-related operations. He added that he is “not satisfied” when people think cryptocurrency trading platforms have the same protection as a stock exchange.
The operator of a now-defunct cryptocurrency investment platform was charged with lying to U.S. regulators to hide the fact that hackers stole more than 6,000 of his customers’ Bitcoins.
The criminal case is U.S. v. Montroll, 18-mag-1372, U.S. District Court, Southern District of New York (Manhattan). The regulators’ lawsuit is SEC v. Montroll, 18-01582, U.S. District Court, Southern District of New York (Manhattan).
Jeffrey Newman represents whistleblowers