SEC to finalize its recommendation in case against BitFunder operator following restitution determination

Maria Nikolova

Any restitution to be made by Jon Montroll will be determined on September 10, 2019.

Shortly after Jon Montroll, the operator of cryptocurrency-related platforms Bitfunder and WeExchange, was sentenced to 14 months of imprisonment and 3 years of supervised release over securities fraud and obstruction of justice, there has been an update in the civil case targeting Montroll.

The document was submitted with the New York Southern District Court on Friday. The Securities and Exchange Commission and the defendant have agreed on proposed settlement terms subject to the submission by Jon Montroll of financial statements and approval of the settlement by the Commission. The Commission’s staff has been awaiting conclusion of the criminal proceeding against Montroll before finalizing its recommendation to the Commission.

On July 11, 2019, Montroll was sentenced in the criminal case. Apart from, inter alia, a 14-month period of incarceration and a forfeiture order in the amount of $167,428, the Judge ordered that any restitution to be made by Montroll will be determined on September 10, 2019. The Commission’s staff is awaiting the restitution determination before finalizing its recommendation to the Commission.

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 Securities and Exchange Commission (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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