The founder of a US Bitcoin platform was arrested for covering up the fact that 6,000 Bitcoins were stolen

On February 21, the U.S. Securities and Exchange Commission (SEC) issued a notice accusing the cryptocurrency exchange BitFunder of operating without registration, issuing false securities, and misleading the SEC in an incident where $70 million worth of virtual currency was stolen by hackers in order to avoid liability. The SEC has filed a lawsuit in the Manhattan Federal District Court. Reuters reported on the 22nd that BitFunder founder Jon E. Montroll has been arrested by the police.

According to the file, Montroll, a resident of Saginaw, Texas, was charged with perjury and obstruction of justice and was arrested in his hometown.

“The defendant repeatedly lied in his testimony and misled SEC staff in an effort to avoid personal liability for the bitcoin losses of thousands of users,” Manhattan District Attorney Geoffrey Berman said in a statement.

Prosecutors said Montroll operated WeExchange, an Australian company that served as a bitcoin custodian and trading service, and BitFunder.com, a website that allowed users to exchange bitcoin for ICO (initial coin offering) virtual currencies equivalent to company shares.

According to the files, in 2013 hackers exploited a weakness in BitFunder’s programming code, which not only allowed them to obtain profits that they had not actually earned, but also allowed them to withdraw 6,000 bitcoins from WeExchange.

After being hacked, Montroll did not disclose the information. Instead, he continued to recruit users and used the bitcoins deposited by new users to pay for users' withdrawal requests.

In the subsequent SEC investigation, Montroll denied that hackers had successfully exploited the vulnerability.

Prosecutors said Montroll also submitted screenshots to the SEC that falsely showed how much bitcoin was available to repay BitFunder users as of October 2013.

Three days after the hack, Montroll used the username "Ukyo" to chat online, seeking help from the heads of various bitcoin exchanges to track down the stolen bitcoins.

Prosecutors said he later transferred some bitcoins to WeExchange to cover up the losses. In early November 2013, WeExchange wallets had difficulty withdrawing money. Montroll used technical problems as an excuse, but the reality was that BitFunder did not have enough bitcoins to meet users' withdrawal needs after bitcoins were stolen by hackers. On November 14, 2013, BitFunder closed down.

The SEC said in the lawsuit that the more than 6,000 bitcoins stolen by hackers were worth about $775,000 at the time. As the price of bitcoin has risen, these bitcoins are now worth about $69.6 million.

“As alleged, Montroll defrauded exchange users by misappropriating bitcoin and failing to disclose the cyberattack on the exchange and the resulting misappropriation of bitcoin. We will continue to vigorously pursue administrative investigations involving distributed ledger technology and ensure that bad actors who commit fraud in this space are held accountable,” said Lara S. Mehraban, Deputy Director of the SEC’s New York Regional Office.

In addition to the false statements it made to cover up the fact that the Bitcoins had been stolen, BitFunder also lacked the basic qualifications to operate.

“We allege that BitFunder illegally operated an unregistered securities exchange. Platforms that engage in securities exchange activities in the United States, whether that activity involves digital assets, tokens, or currencies, 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.

On July 25 last year, the U.S. Securities and Exchange Commission (SEC) issued a statement, clarifying that ICO tokens are securities, and that they must comply with the relevant provisions of the federal securities law within the scope of SEC supervision, and reminded investors to make investment decisions with caution. The SEC pointed out that ICO market participants need to register with the SEC to issue and sell securities. If they do not want to report, they must meet the exemption conditions.

Taking into account the above two violations, the lawsuit filed by the SEC in the Manhattan Federal District Court accused BitFunder and Montroll of violating the anti-fraud and registration provisions of the federal securities laws, and requested permanent injunctions, withdrawal from the market, interest penalties and other related penalties.