The US Securities and Exchange Commission (SEC) on Wednesday charged defunct Bitcoin securities exchange BitFunder and its principle Jon E. Montroll with fraud, that saying they operated an unregistered online securities exchange and concealed critical information while tapping the market for millions of dollars.
In a lawsuit filed in US federal court in Manhattan, the SEC said that the owner of the Bitcoin venue Ukyo failed to disclose a cyberattack on BitFunder’s system that resulted in the theft of more than 6,000 bitcoins. It also accused him with defrauding exchange users by misappropriating their assets.
The Bitcoin-denominated securities site, which launched in December 2012 and held around $16 million in assets, ceased operations in 2013 and transferred out leftover bitcoins to users.
Bitfunder was one of the most interesting parts of the major cryptocurrency’s history because it allowed startups to raise funding for their businesses in a manner that may have been even easier than what is seen with the ICO phenomenon currently.
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By making misleading public statements, Montroll and his digital marketplace sold unregistered securities, regardless of whether that activity involved digital assets, tokens or coins, the SEC said.
The SEC has warned for months that cryptocurrency and related fundraisers may work as a way for scammers to illegally dodge the strict rules placed on regular investments. The warned investors against throwing money into ICOs because their organizers launch investment schemes without even attempting to follow US securities laws.
Earlier last week, the SEC suspended trading in shares of three companies due to questions about their recent PRs which advertised the buyout of cryptocurrency and blockchain-related assets.
Marc Berger, Director of the SEC’s New York Regional Office, commented: “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.”
Lara Mehraban, Associate Regional Director of the SEC’s New York Regional Office, added: “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.”