Topic: [BitFunder] Moving Forward/Resolution Process (Read 292132 times)

SEC Charges Former Bitcoin-Denominated Exchange and Operator With Fraud
FOR IMMEDIATE RELEASE
2018-23

Washington D.C., Feb. 21, 2018 —
The Securities and Exchange Commission today charged a former bitcoin-denominated platform and its operator with operating an unregistered securities exchange and defrauding users of that exchange.  The SEC also charged the operator with making false and misleading statements in connection with an unregistered offering of securities.

The SEC alleges that BitFunder and its founder Jon E. Montroll operated BitFunder as an unregistered online securities exchange and defrauded exchange users by misappropriating their bitcoins and failing to disclose a cyberattack on BitFunder’s system that resulted in the theft of more than 6,000 bitcoins.The SEC also alleges that Montroll sold unregistered securities that purported to be investments in the exchange and misappropriated funds from that investment as well.

“We allege that BitFunder operated unlawfully as an unregistered securities exchange.  Platforms that engage in the activity of a national securities exchange, regardless of whether that activity involves digital assets, tokens, or coins, must register with the SEC or operate pursuant to an exemption.  We will continue to focus on these types of platforms to protect investors and ensure compliance with the securities laws,” said Marc Berger, Director of the SEC’s New York Regional Office.

“As alleged in the complaint, Montroll defrauded exchange users by misappropriating their bitcoins and failing to disclose a cyberattack on the exchange’s system and the resulting bitcoin theft.  We will continue to vigorously police conduct involving distributed ledger technology and ensure that bad actors who commit fraud in this space are held accountable,” said Lara S. Mehraban, Associate Regional Director of the SEC’s New York Regional Office.

The SEC’s complaint, filed in federal district court in Manhattan, charges BitFunder and Montroll with violations of the anti-fraud and registration provisions of the federal securities laws.  The complaint seeks permanent injunctions and disgorgement plus interest and penalties.

The SEC’s investigation was conducted by Daphna A. Waxman, Daphne Downes, and Valerie A. Szczepanik in the New York Regional Office.  Ms. Waxman and Ms. Szczepanik also are members of the SEC’s Distributed Ledger Working Group and the Enforcement Division’s Cyber Unit.  The litigation will be led by Dugan Bliss.  The case is being supervised by Lara S. Mehraban.

In a parallel criminal case, the U.S. Attorney’s Office for the Southern District of New York today filed a complaint against Montroll for perjury and obstruction of justice during the SEC’s investigation.  The SEC appreciates the assistance of the U.S. Attorney’s Office and the Federal Bureau of Investigation.

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The US Securities and Exchange Commission (SEC) and Department of Justice (DOJ) have officially leveled charges against the founder of the now non-operational Bitcoin-dominated exchange BitFunder, Jon E. Montroll, Wednesday Feb. 21.

The SEC released a press statement Wednesday stating that they have charged Montroll, also known as Ukyo, with operating BitFunder as an unregistered securities exchange, defrauding the users of said exchange, and making “false and misleading statements in connection with an unregistered offering of securities.” 

The SEC alleges that both BitFunder and its founder Montroll defrauded exchange users by “misappropriating their bitcoins”, operated as an unregistered securities exchange, and failed to disclose a cyberattack which led to the loss of over 6,000 bitcoins.

In 2013, hackers exploited a weakness in BitFunder’s programming code to falsely credit themselves with over 6,000 bitcoins. In an effort to recuse himself of the responsibility of having lost what was then about $720,000, today worth over $60 mln, Montroll denied the success of the hackers, and additionally provided false balance statements to SEC investigators.

The formal complaint filed by the SEC charges Montroll with violations of the anti-fraud and registration provisions of US federal securities laws. According to the press release, ”[t]he complaint seeks permanent injunctions and disgorgement plus interest and penalties.”

The DOJ also announced today Feb. 21, that Montroll has been arrested and taken into custody by the federal government. The DOJ has charged Montroll with two counts of perjury and one count of obstruction of justice. The counts of perjury and obstruction carry maximum sentences of 5 and 20 years, respectively.

Investor protection remains a priority concern for the federal government in these proceedings. Marc Berger, Director of the SEC’s New York Regional Office stated:

“...Platforms that engage in the activity of a national securities exchange, regardless of whether that activity involves digital assets, tokens, or coins, must register with the SEC or operate pursuant to an exemption.  We will continue to focus on these types of platforms to protect investors and ensure compliance with the securities laws.”

BitFunder ceased trading on Nov. 14, 2013 amid complaints about delayed and frozen withdrawals of funds, following the August hack. Adding to BitFunder’s woes from the hack, the exchange went bankrupt after, following a ban on US traders, American traders left the platform in droves.

At a senate hearing earlier this month, SEC Chairman Jay Clayton noted that, so far, every ICO-issued token the SEC has observed is likely a security under US law, regardless of how the issuer refers to or markets the token. As of December, 2017, Clayton noted that not a single ICO had registered their tokens with the SEC.

so easy that he is still untouched after 4 years

He owes enough so that it probably won't be over until he is forced into bankruptcy. The difference with this situation is that he lives in the US and is easy to track down.

Looks like he took all the money and bought a nursing home or two.

I assume this is over now? Nothing ever seems to be happening, looks like they got away with it.

I can confirm that after some trouble I managed to get back 6.175% of the amount lost (10 XBT).

Not a great consolation but better than nothing.
I also remember that someone reported he was unable to withdraw anything. I was constantly updating a thread with all the available info about weexchange and Ukyo's case and I remember a lot of details. If my mind serves me, people arrived late were those with the most difficulties.

And I also remember that SebastianJu was a bit too naive, believing until the end to the good faith of Ukyo. (I don't mean to be rude, I just envy your optimism

He did not pay back that amount to all. I know because I received no such payment from him. All my funds are missing and probably unrecoverable.

He did not pay back that amount to all. I know because I received no such payment from him. All my funds are missing and probably unrecoverable.

Though he did pay out that amount. I know that because I received such payment from him. The rest is missing and probably unrecoverable.

False statement is false.

Ukyo did indeed make a portal that that payed back 6.175% to everyone. (http://weexclaims.weexchange.co/)

You are the only one that handled a mess like what happened in the best possible way.
I've seen so many scams that I've lost the count, BTC-TC was a white sheep in a black flock.
Thank you.

Not that I 100% believe this narrative, but having wrote all the options code for BTC-TC, I can attest to the complexity in coding something like this, and why it is important not to rush something to delivery.  Probably even more important is to closely monitor activity following launch.

A simple input validation failure (eg: allowing negative numbers to be input instead of positive numbers) could quickly turn things sideways.

Requiring manual review of large withdrawals could have likely caught this as well.

I came really close to selling BTC-TC to Ukyo a few months prior to our first notification from the SEC.  I had a bad feeling about it when I realized I'd have to hand over the wallet with everyone's deposits in it.  I delayed, then the SEC thing happened.  Part of me wishes I'd sold (it was a year and a half of legal expenses and not sleeping at night.) but part of me knows that if I had, then everyone else would have ended up screwed.

I'm still confused why the US Gov't came down on me so hard and yet Ukyo (a Texas resident) has had nothing happen.

I came really close to selling BTC-TC to Ukyo a few months prior to our first notification from the SEC.