Crypto-Fraud – WeExchange and Bitfunder operator sentenced to prison

As reported by the U.S. Department of Justice, Jon Montroll (a/k/a “Ukyo“), the operator of crypto-related services WeExchange and Bitfunder was sentenced to 14 months of imprisonment. Additionally, the court ordered Montroll to serve three years of supervised release and to pay forfeiture in the amount of $167,480. While Montroll’s counsel has argued in favor of a probationary sentence the Government has asked the court for a sentence within the range of 27 to 33 months’ imprisonment.

The Crypto-Fraud Case

According to the U.S. prosecutors, Montroll, a US citizen residing in Texas, operated two different crypto-related services platforms. He controlled and operated WeExchange Australia Pty. Ltd, the Australien company which operated the online platform “WeExchange” offering bitcoin depository and exchange services. Moreover, Montroll operated “BitFunder”, an online platform that facilitated the purchase and trading of virtual shares in investment opportunities offered mostly by others. According to the U.S. prosecutors, those two services were interlinked:

• Users of BitFunder were required to create a WeExchange account to facilitate BitFunder transactions;
• any investments through BitFunder were held on WeExchange in respective wallets;

Unregistered Securities and misappropriation of user funds

Both the U.S. prosecutors and financial regulator SEC accused Montrell of selling unregistered securities and misappropriating investors’ money. The SEC filed a respective complaint in February 2018 and asked for a jury trial.

In 2013, Montroll promoted a security referred to as “Ukyo.Loan” and advised investors to think of it as a personal crypto loan for private investment purposes. He promised to pay subscribers to Ukyo.Loan daily interest on their investment and promised the loan could be redeemed at face value anytime upon request.

Prosecutors and SEC charged Montrell of misappropriation of user funds. Between December 2012 and July 2013, Montroll misappropriated a portion of WeExchange users’ bitcoins to finance his personal expenses.

The BitFunder Hack

In July 2013, Hacker evidently exploited a weakness in the BitFunder code and caused BitFunder to credit them with profits they have not earned  As a result, the hackers were able to steal approximately 6,000 bitcoins from WeExchange. As a result of the hack, BitFunder and WeExchange lacked the bitcoins necessary to cover what Montroll owed to users.

Interestingly, Montroll did not disclose the hack to clients of BitFunder and WeExchange, or investors in Ukyo.Loan. Instead, he continued to promote and sell Ukyo.Loan to customers and 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 the hack.

Guilty Plea to securities fraud and obstruction of justice

In July 2018, Montroll has pleaded guilty to securities fraud and obstruction of justice for deceiving investors and potential investors with his “Ukyo.Loan,” and for his lies to the U.S. Securities and Exchange Commission during the SEC’s investigation into that hack.

Jon Montroll lied to his investors and, after his lies caught the attention of the SEC, lied to them, too.  The sentence he received serves as a reminder that this Office will not overlook those who violate their obligation to be honest with investors and the regulators working to protect them.

Manhattan U.S. Attorney Geoffrey S. Berman