The SEC has filed fraud charges against BitFunder and its founder John E. Montroll. According to the regulator, both of them ran an unregistered securities exchange and committed fraud against those who used the exchange by misappropriating bitcoins and not disclosing a cyberattack in which more than $6,000 bitcoins, worth about $775K, was stolen.
Montroll is accused of selling purported investments that were actually unregistered securities and then misappropriating money from the investments. The offerings were “shares” of “Ukyo.Loan,” also known as “Ukyo Notes.” Buyers were told that money from the sales would go toward private investments and he promised them a .05% daily interest rate.
Instead, Montroll allegedly used some of the proceeds to cover his business and personal expenses and to “replenish” the bitcoins he is accused of misappropriating from an earlier offering. Also, after the cyberattack, Montroll allegedly made it appear as if BitFunder was profitable even though it had a bitcoin deficit.
In late 2013, users began finding it hard to withdraw bitcoins out of the Weexchange Wallet. Montroll claimed that technical issues were the culprit when, in truth, BitFunder didn’t have enough bitcoins to cover what users were owed because of the bitcoin theft and the misappropriation of funds by Montroll. He shut down the platform soon after.
Now, the regulator wants disgorgement, interest, penalties, and permanent injunctions. Meantime, prosecutors in New York have filed a criminal case against Montroll accusing him of committing obstruction of justice and perjury during the SEC’s probe.
Last week, the SEC suspended trading in Victura Construction Group Inc., PDX Partners Inc., and Cherubim Interests Inc. Ex-NFL football player Patrick Johnson is the CEO of all three companies, which are penny stocks. The companies claimed in press releases that they have acquired assets related to cryptocurrency and blockchain technology from a private equity investor’s subsidiary that is involved in such technologies.
The Commission, however, says that it wants to look into the actual business operations of the companies and their assets’ value. The suspensions come six months after the regulator issued an alert cautioning investors to be on the lookout for companies announcing events involving coins/tokens or ICOs (initial coin offering) in an effort to raise their share prices.
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BitConnect Shutters Its Lending and Exchange Operation, Leaving Texas Investors With No Place to Trade Their BCC Currency, Stockbroker Fraud Blog, January 17, 2018
Ameriprise Ordered to Pay $8M Over F-Squared Alpha Sector Strategy Sales, Institutional Investor Securities Blog, December 8, 2017