Bitcoin Exchange Operator Pleads Guilty To Fraud

Jon Montroll, owner and operator of a securities investment platform BitFunder and cryptocurrency exchange WeExchange, has pled guilty to securities fraud and theft. He could face up to 20 years in prison. “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,” Manhattan U.S. Attorney Geoffrey Berman stated. (See also: Former Bitcoin Exchange Operator Arrested: SEC Charges Him With Fraud). 

In February this year, the SEC charged Montroll with operating an unregistered securities exchange and lying to investors about the number of Bitcoin in his possession. He converted investor Bitcoins into US dollars and spent them on personal expenses, such as travel and groceries. WeExchange was attacked in 2013 and hackers made away with 6,000 Bitcoins from the platform.

Montroll did not disclose the theft to investors. Instead he transferred some of his own Bitcoin holdings to make up for the shortfall. The thirty-seven-year-old has a colorful past record as a criminal. He was arrested in 1998 for alleged theft of electronics from Fry’s, an electronics store. He also owed property taxes of $251,546.32 to the Texas county where he lived, when he was arrested. In 2010, he was sued in a copyright case involving a sex tape featuring a former Sports Illustrated model. (See also: Can Bitcoin Be Hacked?)

Rough Edges To Bitcoin’s Rise 

The case highlights the rough edges to Bitcoin’s rise to prominence. The promise of phenomenal returns has attracted hackers to its ecosystem, who have increasingly made away with cryptocurrencies from exchanges. Bitcoin tracking firm Chainanalysis estimates that up to 3.7 million Bitcoin are already lost. According to the firm, the loss has translated into a reduction of the cryptocurrency’s market cap by between 13% to 22%.

Hacks and scandals have also undermined confidence in the idea that a cryptocurrency could become a store of value like gold. Regulators and economists regularly point to such scandals as proof that Bitcoin’s ecosystem is too unstable for investment or daily transactions. 

Investing in cryptocurrencies and Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.

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