SEC and BitFunder operator Jon Montroll seek Court approval of proposed settlement
The SEC also seeks an order dismissing its claims against BitFunder.
The United States Securities and Exchange Commission (SEC) and Jon Montroll, the operator of Bitcoin-related services WeExchange and Bitfunder.com, are seeking Court’s approval of their proposed settlement.
On May 11, 2020, the parties in the case filed a proposed judgment with the New York Southern District Court. The document:
enjoins Montroll from violating Sections 5 and 10(b) of the Securities Exchange Act of 1934 [15 U.S.C. §§ 78e &78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5], promulgated thereunder; and Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 [15 U.S.C. §§ 77e(a), e(c) & 77q(a)]; and
orders that Montroll is liable for disgorgement in the amount of $155,572.53 and that said disgorgement shall be deemed satisfied by the order of restitution.
The regulator also requests that the Court dismiss the Commission’s claims against BitFunder under Federal Rule of Civil Procedure 41(a)(2). The entity is now defunct, has no assets, and therefore is unlikely to be used by Montroll to engage in future violations, the SEC explains.
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.