Bitcoin ‎Securities Exchange Operator Pleads Guilty To Fraud

Crime, News | July 24, 2018 By:

Jon E. Montroll, founder of defunct bitcoin ‎securities exchange BitFunder and WeExchange, has pled guilty to securities fraud and obstruction of justice charges.

Montroll, also known as “Ukyo,” was accused of running an unregistered securities exchange, as well as providing false sworn testimony to the US Securities and Exchange Commission (SEC). Each charge carries a maximum penalty of 20 years in prison.

According to the US Attorney for the Southern District of New York, between December 2012 and July 2013, Montroll converted a portion of WeExchange users’ bitcoins to his personal use without the users’ knowledge or consent. He also allegedly promoted a security referred to as “Ukyo.Loan,” where he encouraged investors to “think of Ukyo.Loan as a sort of round-about investment” in BitFunder and WeExchange. He allegedly promised to pay purchasers of Ukyo.Loan daily interest on their investment and promised shares could be “redeemed at face value anytime upon request.”

In November 2013, hackers exploited a weakness in BitFunder’s programming code to cause it to credit them with profits they had not actually earned. The hackers were reportedly able to wrongfully withdraw from WeExchange approximately 6,000 bitcoins, which left the platform insolvent. Montroll allegedly continued to promote and sell Ukyo.Loan without disclosing the exploit to users. He reportedly raised approximately 978 bitcoins through Ukyo.Loan after his discovery of the exploit.

During the course of the investigation, Montroll provided the SEC with a falsified screenshot purportedly documenting the total number of bitcoins available to BitFunder users in the WeExchange Wallet. Additionally, he also provided materially false and misleading answers to certain questions about the timing of his discovery of the exploit.

“As he admitted today, Jon Montroll deceived his investors and then attempted to deceive the SEC,” Manhattan U.S. Attorney Geoffrey S. Berman said in a statement. “He repeatedly lied during sworn testimony and misled SEC staff to avoid taking responsibility for the loss of thousands of his customers’ bitcoins.”

The prosecution of this case is being overseen by the Office’s Securities and Commodities Fraud Task Force. Montroll will be sentenced by Judge Berman at an undetermined future date.