SEC and Bitfunder operator Jon Montroll near settlement authorization

Maria Nikolova

The parties have reached a settlement in principle, subject to authorization of the settlement in principle by the Commission.

The United States Securities and Exchange Commission (SEC) and Jon Montroll, the operator of Bitcoin-related services WeExchange and Bitfunder.com, appear to be close to getting authorization of their settlement.

In a status update filed with the New York Southern District Court earlier today, the SEC says the parties have reached a settlement in principle, subject to: (1) authorization of the settlement in principle by the Commission; and (2) the Court’s approval of that settlement. The process of obtaining settlement authorization is underway, and Commission counsel anticipates that it will be in a position to move for the Court’s approval of the settlement, assuming the Commission authorizes the settlement, within eight weeks, by March 23, 2020.

Let’s recall that, in a related criminal case, Montroll was sentenced to 14 months in prison and will have to pay restitution of $167,438.

Montroll has pleaded guilty to securities fraud and obstruction of justice for deceiving investors and potential investors of virtual security known as Ukyo.Loan in connection with Montroll’s discovery of a catastrophic computer hack of his business, and for his lies to the U.S. Securities and Exchange Commission during the SEC’s investigation into that hack.

By December 2012, Montroll operated two different Bitcoin-related web services. First, Montroll operated WeExchange, Australia, Pty. Ltd, known as “WeExchange,” which functioned as a bitcoin depository and currency exchange service. Second, Montroll launched “Bitfunder.com,” an online platform that facilitated the purchase and trading of virtual shares in investment opportunities offered mostly by others. Those two services interlinked: Users of BitFunder were required to create a WeExchange account to facilitate BitFunder transactions, and any investments through BitFunder were held on WeExchange in what was referred to as the “WeExchange Wallet.”

Beginning in late July 2013, and continuing for about a month, until August 27, 2013, a hacker or hackers exploited a weakness in BitFunder’s programming code to confer credits to themselves that they did not earn. When Montroll discovered the Exploit, he attempted to cover it up. Montroll transferred a large amount of bitcoin he had stored elsewhere into the WeExchange system to backfill the losses, but did not disclose the fact of the Exploit to his users.

By the early fall of 2013, the SEC began investigating the Exploit and Montroll’s response. As part of that investigation, the SEC conducted an investigative deposition of Montroll. During that interview, Montroll falsely denied to the SEC that the Exploit had caused losses and falsely claimed that he had managed to detect and halt the Exploit within its first few hours. A few weeks after the initial interview, Montroll admitted that the Exploit had, in fact, been successful and that users’ bitcoins had been taken.

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