February 23, 2018

Fraudster of the Week — BitFunder Founder Jon E. Montroll

By the C|C Whistleblower Lawyer Team

On Wednesday, the Securities and Exchange Commission filed a lawsuit against Jon E. Montroll and his former company, BitFunder, alleging violations of the anti-fraud and registration provisions of the federal securities laws. In parallel criminal proceedings, the U.S. Attorney’s Office for the Southern District of New York charged Montroll with perjury and obstruction of justice in connection with the SEC’s investigation into his company’s activities. BitFunder, which operated from 2012 to 2013, was an online platform that permitted users to buy and sell virtual “shares” of digital currency-related businesses in exchange for Bitcoin. 

The SEC’s complaint asserts that Montroll operated BitFunder as an unregistered online securities exchange. According to Marc Berger, Director of the SEC’s New York Regional Office, “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.” The SEC asserts that BitFunder did neither, to the detriment of investors.

The SEC has further alleged that Montroll and BitFunder defrauded users by misusing their bitcoins and failing to disclose a cyberattack on the platform. In July 2013, individuals allegedly hacked BitFunder, illegally withdrawing Bitcoins that would be worth more than $60 million today. When the SEC questioned Montroll under oath about the hack, he denied that the hackers had succeeded and claimed that BitFunder’s system had halted the cryptocurrency withdrawals. The SEC and federal prosecutors allege that these statements were false. Moreover, they assert that Montroll fabricated documents to support his assertions.

The allegations against Montroll are part of a broader SEC-crackdown on shady dealings in the cryptocurrency space. Earlier this month in a hearing before the Senate Banking Committee, SEC Chairman Jay Clayton testified that his agency may ask Congress for legislation regulating cryptocurrency-related operations. He stated that he is “not satisfied” when investors incorrectly believe that cryptocurrency trading platforms offer the same protections as stock exchanges.

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