Operator Of Bitcoin Investment Platform Pleads Guilty To Securities Fraud And Obstruction Of Justice

Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced that JON E. MONTROLL, a/k/a “Ukyo,” pled guilty today to securities fraud and obstruction of justice.  MONTROLL, who issued and sold securities related to a bitcoin investment platform that he ran through false statements about the success of the business, later provided false sworn testimony to the United States Securities and Exchange Commission (the “SEC”) and provided the SEC with a false document during the course of the SEC’s investigation into his operation of the bitcoin investment platform.  MONTROLL’s plea was taken by U.S. Magistrate Judge James L. Cott.  The case is assigned to U.S. District Judge Richard M. Berman.

Manhattan U.S. Attorney Geoffrey S. Berman said:  “As he admitted today, Jon Montroll deceived his investors and then attempted to deceive the SEC.  He repeatedly lied during sworn testimony and misled SEC staff to avoid taking responsibility for the loss of thousands of his customers’ bitcoins.”

According to the Information, the allegations in the Complaint, and statements made during the proceedings in Manhattan federal:

JON E. MONTROLL operated two online bitcoin services:  WeExchange Australia, Pty. Ltd. (“WeExchange”) and BitFunder.com (“BitFunder”).  WeExchange functioned as a bitcoin depository and currency exchange service.  BitFunder facilitated the purchase and trading of virtual shares of business entities that listed their virtual shares on the BitFunder platform.

Between the launch of Bitfunder, in or about December 2012, and at least in or about July 2013, MONTROLL converted a portion of WeExchange users’ bitcoins to his personal use without the users’ knowledge or consent.  For example, MONTROLL exchanged numerous bitcoins taken from WeExchange into United States dollars, then spent those funds on personal expenses, such as travel and groceries.

Beginning on or about July 18, 2013, MONTROLL promoted a security referred to as “Ukyo.Loan.”  As described by MONTROLL in a public post about Ukyo.Loan, MONTROLL encouraged investors to “think of [Ukyo.Loan] as a sort of round-about investment” in BitFunder and WeExchange and, at the same time, described Ukyo.Loan as “a personal loan” and “for private investment purposes.”  MONTROLL further promised to pay purchasers of Ukyo.Loan daily interest on their investment and promised shares could be “redeemed at face value anytime upon request.”

During the summer of 2013, one or more individuals (the “Hackers”) exploited a weakness in the BitFunder programming code to cause BitFunder to credit the Hackers with profits they did not, in fact, earn (the “Exploit”).  As a result, the Hackers were able to wrongfully withdraw from WeExchange approximately 6,000 bitcoins, with the majority of those coins being wrongfully withdrawn between July 28, 2013, and July 31, 2013.  As a result of the Exploit, BitFunder and WeExchange lacked the bitcoins necessary to cover what MONTROLL owed to users.

Notwithstanding the scope of the Exploit, MONTROLL failed to disclose the Exploit to users of BitFunder and WeExchange, or investors in Ukyo.Loan.  Instead, MONTROLL continued to promote and sell Ukyo.Loan to customers and, on at least one occasion, falsely represented to customers that BitFunder was commercially successful.  As a result of his omissions and misrepresentations, MONTROLL raised approximately 978 bitcoins through Ukyo.Loan after his discovery of the Exploit.

The SEC’s New York Regional Office began an investigation into BitFunder and the Exploit.  During the course of the investigation, MONTROLL provided the SEC with a falsified screenshot purportedly documenting, among other things, the total number of bitcoins available to BitFunder users in the WeExchange Wallet as of October 13, 2013.  Additionally, during sworn investigative testimony on both November 14, 2013, and October 6, 2015, MONTROLL provided materially false and misleading answers to certain questions about, among other things, the timing of MONTROLL’s discovery of the Exploit.

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MONTROLL, 37, of Saginaw, Texas, pled guilty to one count of securities fraud and one count of obstruction of justice.  Each charge carries a maximum penalty of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

MONTROLL will be sentenced by Judge Berman at a date to be determined.

U.S. Attorney Geoffrey S. Berman praised the outstanding work of the Federal Bureau of Investigation.  He also thanked the SEC, which previously filed civil charges against MONTROLL in a separate action.

The prosecution of this case is being overseen by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorney Andrew Thomas is in charge of the case.