SEC files charges against former crypto exchange

The Securities and Exchange Commission has filed charges against a former cryptocurrency exchange and its founder. 

The commission alleges BitFunder and founder Jon E. Montroll operated an unregistered securities exchange and defrauded its users by misappropriating their bitcoins. It also charged the operator with making false and misleading statements in connection with an unregistered offering of securities.

SEC claims he failed to disclose a cyberattack on BitFunder’s system that resulted in the theft of more than 6,000 bitcoins. It also alleges that Montroll sold ‘unregistered securities’ that he claimed were investments on the exchange — and misappropriated funds from that as well.

“We allege that BitFunder operated unlawfully as an unregistered securities exchange,” said Marc Berger, director of the SEC’s New York regional office. ‘ 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.”

Jon E. Montroll did not respond to a request for comment.

The SEC’s complaint, which was filed in federal district court in Manhattan, charges BitFunder and Montroll 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.  In a parallel criminal case, the U.S. Attorney’s Office for the Southern District of New York today filed a complaint against Montroll for perjury and obstruction of justice during the SEC’s investigation.

SEC’s new cyber unit, which was created to target violations involving distributed ledger technology and initial coin offerings, has already taken action against a number of companies for fraud.

In December, it filed charges against two organisers of a $15m initial coin offering (ICO). Quebec-based Dominic Lacroix and Sabrina Paradis-Royer, along with a firm called PlexCorp, were all charged with violating U.S. securities laws and defrauding investors.

Earlier this month, The SEC also put the brakes on an initial coin offering (ICO) that was seeking to raise up to $1bn to develop ‘‎the world’s first decentralized bank’.

Dallas-based AriseBank was ordered to stop its fraudulent ICO and refund investor’s money, with the SEC reporting that ‘it used social media, a celebrity endorsement, and other wide dissemination tactics to raise what it claims to be $600m of its $1bn goal in just two months’.

With cryptocurrencies growing in popularity, there have been calls on the government to introduce appropriate regulation to protect both the consumer and businesses. However, seven cryptocurrency companies recently formed a UK cryptocurrency trade body, bringing the first self-regulation to the industry, while a group of Japanese cryptocurrency exchanges were also reported to be following suit with self regulation.

Copyright © 2018 RegTech Analyst




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