The 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.