Jon Montroll, the founder of cryptocurrency platforms WeExchange and BitFunder, has pleaded guilty to securities fraud and obstruction of justice.
Montroll, who also uses the moniker Ukyo, was accused of deceiving investors and lying to the U.S. Securities and Exchange Commission (SEC) when they were investigating his operations in Australia from 2013 to 2015.
Both WeExchange and BitFunder have subsequently ceased operations.
BitFunder was a cryptocurrency trading platform launched in 2013 that supported the trade of virtual shares of businesses. WeExchange was a bitcoin wallet service and exchange platform that was hacked in 2013 and resulted in the theft of 6,000 bitcoins belonging to customers. Montroll tried to cover up the theft by transferring his own bitcoin into the accounts and lied to the SEC when questioned about it.
Cover up attempt
According to the Department of Justice press release, the hackers exploited a weakness in the Bitfunder code and managed to credit their own accounts with false funds. They then managed to withdraw the funds using WeExchange.
Despite the huge losses, Montroll continued to run the exchange and attract new customers. He further attempted to deceive authorities by providing an altered image depicting WeExchange’s bitcoin balance.
New York U.S. Attorney Geoffrey Berman announced the guilty plea on Monday, stating that Montroll had admitted to deceiving investors and the SEC, lying during testimony and attempting to subvert to the course of justice.
Securities fraud and obstruction of justice
Charges include one count of securities fraud and one count of obstruction of justice which together could attract a maximum 40-year prison sentence. However, his actual sentence has not yet been determined.
37-year old Montroll of Texas was also accused of using customers funds for personal expenses including travel and retail goods. During the course of his activities, he also attempted to attract investment into a security he promoted called Ukyo.Loan on which he promised to pay investors daily interest.
Further investigations into cryptocurrency fraud
Earlier this month the financial news website Investopedia published an article on cryptocurrency fraud. In its research, it found that cryptocurrency fraud was the second highest investment scam category in Australia.
The SEC has been very busy this year investigating cryptocurrency and blockchain-related fraudulent activity. Part of its investigations involve companies using the word ‘blockchain’ in their business name while not actually having any blockchain-related business functions.
Another U.S. regulatory body, the North American Securities Administration Association (NASAA) launched an initiative earlier this year called ‘Operation Cryptosweep’. It has been touted as the largest coordinated effort to crack down on fraudulent ICOs in the United States and in May alone investigated 70 possible offenders.
Mark Hartley is an IT specialist, freelance writer, keen traveler, and blockchain enthusiast. He has worked on the trading floors of the world’s biggest interdealer broker in London and helped integrate crypto-services into IT trading systems. When he’s not searching for the world’s most beautiful beach, he’s nose deep in any crypto and blockchain related news.