US Govt updates on victim identification ahead of BitFunder operator sentencing

Maria Nikolova

Since the last conference, the Government has identified 256 user accounts that suffered losses as a result of Jon Montroll’s securities fraud.

As the sentencing of Jon Montroll, the operator of Bitcoin-related services WeExchange and Bitfunder.com, approaches, the United States Government has filed a Letter with the New York Southern District Court informing the Court regarding the Government’s efforts to identify victims of Montroll’s offense and to notify those victims of these proceedings.

Since the last conference, the Government has identified approximately 256 user accounts that suffered losses as a result of the defendant’s securities fraud. The Government has managed to associate names or email addresses to some 230 of those user accounts. The remaining accounts could not be associated with names or email addresses. Based on the Government’s analysis, these victims lost approximately $212,629.32 in total. The total loss figure is based on losses of 2,258.898876 bitcoin and a July 26, 2013 bitcoin price of $94.13 per bitcoin.

For those identified victims residing in the United States, the Government has sent written notice informing them of the April 2, 2019 sentencing proceeding and of their right to be heard in connection with sentencing. For those victims residing abroad, the Government has contacted the relevant foreign Government or provided notice to the identified victims directly. As of the date of the letter (March 26, 2019), the Government has not received any victim impact statements.

As FinanceFeeds has earlier reported, Montroll’s counsel has argued in favor of a probationary sentence. But the Government pushes for a harsher punishment and argues that a sentence within the range of 27 to 33 months’ imprisonment is reasonable and appropriate in this case.

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 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.

On February 20, 2018, the United States charged Montroll by Criminal Complaint with perjury and obstruction of justice.

On July 23, 2018, Montroll consented to the filing of Information, which charged Montroll with securities fraud and obstruction of justice. That same day, Montroll pleaded guilty, pursuant to a plea agreement with the Government.

The sentencing of Montroll is currently scheduled for April 2, 2019.

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