In a further sign that it is serious about cracking down on fraudulent practices in the cryptocurrency ecosystem, the Securities and Exchange Commission has charged BitFunder, a now-defunct bitcoin exchange, with fraud for operating without licenses. Its owner, Jon Montroll, was charged for defrauding customers.
BitFunder was launched in December 2012 and closed operations in November 2013. In its allegations, the SEC stated that BitFunder operated illegally and that its founder, Jon Montroll, “defrauded exchange users by misappropriating their bitcoins and failing to disclose a cyberattack on the exchange’s system and the resulting bitcoin theft.”
In a separate legal action, the U.S. Department of Justice charged Montroll with two counts of perjury and one count of obstruction of justice for allegedly lying to the SEC.
According to the SEC, BitFunder was hacked, and 6,000 bitcoins were stolen from its exchange during the 11 months of its operations. Using today's bitcoin price of about $10,000 a coin, the theft is valued at about $60 million.
But Montroll did not report the hack to BitFunder users and “repeatedly lied” during sworn testimony by the SEC. He has already been arrested and appeared in court.
During a Congressional hearing earlier this month, SEC Chief Jay Clayton warned about criminal elements within the cryptocurrency ecosystem. “If people are getting ripped off, that presents a reputational and systemic risk,” he said. (See also: SEC Chair Testified About Cryptocurrency Regulation In Congress.)
The SEC has since sharpened its enforcement of cryptocurrencies. For example, it suspended stock trading for three securities which had acquired blockchain and cryptocurrency-related investments last week. “There are questions regarding the nature of the companies’ business operations and the value of their assets, including in press releases issued beginning in early January 2018,” the agency wrote. (See also: SEC Halts Trading In Three Firms Linked To Cryptocurrencies.)
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