SEC Busts Founder of Shuttered Bitcoin Exchange

(CN) – The founder of BitFunder, a now-shuttered bitcoin exchange failed to inform users about a cyberattack theft of 6,000 bitcoins and tried to replenish the lost coins by selling unregistered securities, the Securities and Exchange Commission claims.

The SEC’s complaint says Jon Montroll, the 37-year-old founder of BitFunder, was arrested in Texas on criminal charges of perjury and obstruction of justice.

The same day, it filed suit in New York accusing Montroll of running an unregistered securities exchange and misappropriating BitFunder users’ bitcoins for himself.

Beginning in 2013, Montroll allegedly sold “shares” of an unregistered security he called “Ukyo notes,” which purported to be an investment with a daily interest rate of 0.05 percent. But instead, Montroll used investors’ money to pay personal expenses and to replenish the bitcoins he had taken from BitFunder users, the commission alleges.

Montroll also failed to tell users about a cyberattack on BitFunder’s servers that stole more than 6,000 bitcoins, which were then valued at $775,000.

“Following the cyberattack and bitcoin theft, Montroll continued to operate BitFunder under a bitcoin deficit while misleading investors that it was an ongoing profitable platform,” according to the SEC’s complaint. “In reality, however, BitFunder did not hold sufficient bitcoins to cover amounts owed to its users due to Montroll’s misappropriation and the cyberattack and bitcoin theft.”

Montroll shut down BitFunder in November 2013.

At the time, Montroll claimed that BitFunder controlled 6,697 bitcoins, but in reality, he only held 140-150 bitcoins, the commission claims.

A single bitcoin is currently valued at approximately $10,000, after having fallen from a high of $19,000 per bitcoin in mid-December.

The digital currency faces increasing scrutiny from regulators worldwide as more and more investors have become fascinated by its profit potential.

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