SEC’s consideration of settlement with Bitfunder operator takes longer than anticipated
Although the regulator and Bitfunder operator John Montroll have reached a settlement in principle, the Commission has yet to move to the Court for approval of the settlement.
About two months have passed since the United States Securities and Exchange Commission (SEC) indicated that its settlement with Jon Montroll, the operator of Bitcoin-related services WeExchange and Bitfunder.com, was getting closer to authorization. The latest filings with the New York Southern District Court, however, show that the SEC’s consideration of the settlement is taking longer than anticipated.
In a letter filed with the Court on March 23, 2020, and seen by FinanceFeeds, the SEC explains that it had anticipated that the Commission would be in a position to move for the Court’s approval of the settlement, assuming the Commission authorizes the staff to submit the settlement, within eight weeks by March 23, 2020. However, Commission consideration of the settlement in principle is taking longer than anticipated. As a result, the SEC proposes updating the Court about the Commission’s consideration of the settlement in principal – or moving for the Court’s approval of that settlement – by no later than April 22, 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.