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BitFunder Founder Charged by SEC for Stealing $61 Million Worth of Bitcoin

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Today, the U.S. Securities and Exchange Commission (SEC) brought charges against Jon E. Montroll and his exchange BitFunder for operating an unregistered securities exchange and defrauding users. On top of that, the agency also charged the operator — Montroll — with making false and misleading statements in connection with an unregistered offering of securities. BitFunder was a platform that permitted users to buy and sell virtual “shares” of various digital currency-related enterprises in exchange for Bitcoin.

“We allege that BitFunder operated unlawfully as an unregistered securities exchange.  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.  We will continue to focus on these types of platforms to protect investors and ensure compliance with the securities laws,” said Marc Berger, Director of the SEC’s New York Regional Office.

The SEC’s complaint, filed in federal district court in Manhattan, charges Montroll and BitFunder with violations of the anti-fraud and registration provisions of the federal securities laws. The complaint seeks permanent injunctions and disgorgement plus interest and penalties. 

The agency alleges Montroll operated BitFunder as an unregistered online securities exchange and defrauded exchange users by misappropriating their Bitcoin, and also for failing to disclose a cyberattack on BitFunder’s system that resulted in the theft of more than 6,000 Bitcoin. Going off the price of Bitcoin today, that’s about $61,800,000.

“As alleged in the complaint, Montroll defrauded exchange users by misappropriating their bitcoins and failing to disclose a cyberattack on the exchange’s system and the resulting bitcoin theft.  We will continue to vigorously police conduct involving distributed ledger technology and ensure that bad actors who commit fraud in this space are held accountable,” said Lara S. Mehraban, Associate Regional Director of the SEC’s New York Regional Office.

Unfortunately for Montroll, his legal troubles don’t stop with the SEC: Also today, in a parallel criminal case, the U.S. Attorney’s Office for the Southern District of New York filed a complaint against him for perjury and obstruction of justice during the SEC’s investigation. This implies that Montroll, in some way, must have not fully cooperated with the SEC during the agency’s investigation.

This case comes as the SEC is cracking down on other companies and individuals it believes are partaking in shady business within the crypto-space. In January of this year, the agency advised people to “exercise caution” with Bitcoin and other digital currencies.

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SEC Halts Trading of Three Companies with Assets Tied to Cryptocurrencies

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The U.S. Securities and Exchange Commission (SEC) has halted trading in three companies claiming acquisitions of assets tied to cryptocurrency and blockchain technologies. The agency said it had questions about their business operations and the value of the companies assets.

Cherubim Interests Inc., PDX Partners Inc., and Victura Construction Group Inc. issued similar press releases stating they acquired the assets from a subsidiary of a private-equity investor. Additionally, Cherubim shared its plans to launch an initial coin offering. In announcing the trading suspensions, the SEC repeated a warning to investors about companies that may be seeking short-term stock boosts by claiming involvement with blockchain technology.

The suspension notice was dated February 15th. The agency explained: “The SEC’s trading suspension orders state that recent press releases issued by CHIT, PDXP, and VICT claimed that the companies acquired AAA-rated assets from a subsidiary of a private equity investor in cryptocurrency and blockchain technology, among other things. According to the SEC order regarding CHIT, it also announced the execution of a financing commitment to launch an initial coin offering.”

“We did receive confirmation that they suspended trading this morning and that it will continue until March 2,” Patrick Johnson, Chief Executive Officer of all three companies, said in a telephone interview. “We haven’t made any false claims about anything that we have put out.” Johnson is fully cooperating, added that he was surprised by the move and will provide the SEC with any information it requires.

“Investors should give heightened scrutiny to penny stock companies that have switched their focus to the latest business trend, such as cryptocurrency, blockchain technology, or initial coin offerings,” Michele Wein Layne, director of the SEC’s Los Angeles office, said in the agency’s statement. The SEC can suspend trading for 10 days and ban brokers from activity in a stock until its reporting requirements are met.

In January, SEC Chairman Jay Clayton warned companies about changing their names just to cash in on the cryptocurrency craze. For months, Clayton has been sounding the alarm about initial coin offerings, a market that he has said is probably full of fraud: “Fraudsters often try to use the lure of new and emerging technologies to convince potential victims to invest their money in scams.”

The suspensions represent the latest move by the agency to halt trading of companies that have publicly stated some kind of pivot or business focus on the technology. In just the past few weeks, a number of companies have tweaked their names or business strategies to embrace the growing hype surrounding virtual currencies — and seen their stock prices soar. Long Island Iced Tea Corp. more than tripled after it became Long Blockchain; Eastman Kodak Co. surged more than 200% last month after it said it would create a Kodakcoin that could be used to buy photos on an online database.

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