$590 000 USD

JULY 2013

AUSTRALIA

WEEXCHANGE

DESCRIPTION OF EVENTS

"We provide a place for Bitcoin users to trade Bitcoins to or from USD, AUD or CAD currently."

 

"The exchange emerged from its limited (invite-only) operations on December 8, 2012. The exchange is operated in Australia by WeExchange Australia, Pty. Ltd and in the U.S. by WeExchange, Inc of Texas."

 

"JON E. MONTROLL operated two online bitcoin services: WeExchange Australia, Pty. Ltd. (“WeExchange”) and BitFunder.com (“BitFunder”). WeExchange functioned as a bitcoin depository and currency exchange service. BitFunder facilitated the purchase and trading of virtual shares of business entities that listed their virtual shares on the BitFunder platform."

 

"Between the launch of Bitfunder, in or about December 2012, and at least in or about July 2013, MONTROLL converted a portion of WeExchange users’ bitcoins to his personal use without the users’ knowledge or consent. For example, MONTROLL exchanged numerous bitcoins taken from WeExchange into United States dollars, then spent those funds on personal expenses, such as travel and groceries."

 

"Beginning on or about July 18, 2013, MONTROLL promoted a security referred to as “Ukyo.Loan.” As described by MONTROLL in a public post about Ukyo.Loan, MONTROLL encouraged investors to “think of [Ukyo.Loan] as a sort of round-about investment” in BitFunder and WeExchange and, at the same time, described Ukyo.Loan as “a personal loan” and “for private investment purposes.” MONTROLL further promised to pay purchasers of Ukyo.Loan daily interest on their investment and promised shares could be “redeemed at face value anytime upon request.”"

 

"During the summer of 2013, one or more individuals (the “Hackers”) exploited a weakness in the BitFunder programming code to cause BitFunder to credit the Hackers with profits they did not, in fact, earn (the “Exploit”). As a result, the Hackers were able to wrongfully withdraw from WeExchange approximately 6,000 bitcoins, with the majority of those coins being wrongfully withdrawn between July 28, 2013, and July 31, 2013. As a result of the Exploit, BitFunder and WeExchange lacked the bitcoins necessary to cover what MONTROLL owed to users."

 

"The operator of a shuttered bitcoin-denominated exchange was arrested on Wednesday on federal charges that he lied to U.S. securities regulators to avoid taking responsibility for the theft by hackers of virtual currency now worth nearly $70 million."

 

"Notwithstanding the scope of the Exploit, MONTROLL failed to disclose the Exploit to users of BitFunder and WeExchange, or investors in Ukyo.Loan. Instead, MONTROLL continued to promote and sell Ukyo.Loan to customers and, on at least one occasion, 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 his discovery of the Exploit."

 

"The SEC’s New York Regional Office began an investigation into BitFunder and the Exploit. During the course of the investigation, MONTROLL provided the SEC with a falsified screenshot purportedly documenting, among other things, the total number of bitcoins available to BitFunder users in the WeExchange Wallet as of October 13, 2013. Additionally, during sworn investigative testimony on both November 14, 2013, and October 6, 2015, MONTROLL provided materially false and misleading answers to certain questions about, among other things, the timing of MONTROLL’s discovery of the Exploit."

 

"MONTROLL, 37, of Saginaw, Texas, pled guilty to one count of securities fraud and one count of obstruction of justice. Each charge carries a maximum penalty of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. MONTROLL will be sentenced by Judge Berman at a date to be determined."

WeExchange was an Australian-based exchange which offered trading in CAD, USD, and AUD for a limited set of cryptocurrencies. The platform operators spent investor funds on personal expenses and in the summer of 2013 the platform was hacked. The exact details of the hack have limited details being reported, though roughly 6,000 bitcoins went missing. The platform didn't disclose the hack, and investors appear to have lost their funds.

Sources And Further Reading

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