SEC Charges Defunct Bitcoin Trading Platform With Operating Unregistered Securities Exchange
The Securities and Exchange Commission has charged a defunct Bitcoin-denominated platform and its founder with operating an unregistered securities exchange that defrauded its users.
BitFunder and its operator, Jon Montroll, are alleged to have unlawfully operated BitFunder as an unregistered online securities exchange and failed to disclose a cyberattack on BitFunder that resulted in the theft of more than 6,000 Bitcoins, which today are worth close to $70 million.
“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,” Marc Berger, the director of the SEC’s New York office, said in a statement.
The SEC’s complaint also alleges Montroll sold what he called shares of “Ukyo Notes,” telling purchasers the funds raised would be used for private investment purposes. Montroll used a portion of the proceeds to pay personal and business expenses and to replenish Bitcoins he had misappropriated from BitFunder prior to the offering, according to the SEC.
BitFunder, which ceased trading in 2013, and Montroll were charged with violations of the anti-fraud and registration provisions of federal securities laws. The SEC’s complaint, filed in Manhattan federal court Feb. 21, seeks permanent injunctions and disgorgement, plus interest and penalties.
The U.S. Attorney’s Office filed a parallel criminal complaint against Montroll the same day, alleging perjury and obstruction of justice during the SEC’s investigation.
The SEC has ramped up its scrutiny in recent months of the market for cryptocurrencies, issuing a series of warnings to companies and investors and taking action when it feels that securities laws have been violated.
Last month, for instance, SEC Chairman Jay Clayton said agency staff will be on high alert for ICOs that violate securities laws, while warning lawyers about their professional obligations. It also recently charged two companies with defrauding investors in a pair of ICOs.