FBI Arrests Exchange Operator for Lying About 6000 Bitcoin Hack

Jon E. Montroll, a 37 year old from Texas, is now facing up to 30 years in jail for perjury and obstruction of justice. The operator of Weexchange and Bitfunder is accused of repeatedly lying to the SEC under testimony in an effort cover up massive client losses after being hacked.

Bitcoin Exchange Operator Arrested by FBI
The FBI announced on Wednesday that Jon E. Montroll (aka Ukyo) was taken into federal custody for giving false sworn testimony and false documentation to the Securities Exchange Commission (SEC). He operated two bitcoin services, Weexchange which functioned as a bitcoin depository and currency exchange service, and Bitfunder which facilitated the purchase and trading of shares of businesses that listed on the platform.
During the summer of 2013, hackers stole approximately 6,000 bitcoins from Weexchange, and, as a result, the two ventures lacked the bitcoin necessary to cover what was owed users. Montroll allegedly lied to both investors and investigators in an effort to hide this.

Manhattan U.S. Attorney Geoffrey S. Berman said: “SEC investigations rely on learning the full and accurate facts concerning financial markets and products. As alleged, the defendant repeatedly lied during sworn testimony and misled SEC staff to avoid taking personal responsibility for the loss of thousands of his customers’ bitcoins. These charges signify that we will use the full force of the federal criminal law to protect the integrity of the SEC’s investigative process.”

It’s Not the Crime, It’s the Cover-Up
In a November 2013 testimony to the SEC, Montroll denied that the hack had been successful, testifying that when the hackers went to withdraw, “the system stopped them because the amount was obviously causing issues with the system.” He later added that the issue “was corrected immediately, whenever the system started having the problems, and I caught on to what was happening I’d say within a few hours.”
Montroll also gave the SEC a screenshot supposedly showing the number of bitcoins available to Bitfunder users in the Weexchange Wallet as of October 13, 2013. This balance statement reflected 6,679.78 BTC as of that date. However, the investigators say that the evidence revealed that this was a misleading fabrication.

Three days into the incident, Montroll participated in a chat in which he sought help in tracking down “stolen coins.” When that did not work, he allegedly transferred some of his own bitcoin holdings into Weexchange to conceal the losses. The cyber theft, however, continued, and by the time of the balance statement it actually held thousands of bitcoins less than Montroll had asserted, the investigators found.

When confronted with that evidence, Montroll allegedly lied again. While he admitted that the balance statement was the product of his manual intervention in the Weexchange system, he claimed to have discovered the success of the hack only after the SEC had asked him about it during his first day of testimony, and to have no knowledge of the chat.
FBI Assistant Director-in-Charge William F. Sweeney Jr. commented: “As alleged, Montroll committed a serious crime when he lied to the SEC during sworn testimony. In an attempt to cover up the results of a hack that exploited weaknesses in the programming code of his company, he allegedly went to great lengths to prove the balance of bitcoins available to Bitfunder users in the Weexchange Wallet was sufficient to cover the money owed to investors. It’s said that honesty is always the best policy – this is yet another case in which this virtue holds true.”

Could other exchange operators be hiding similar issues from investors? Share your thoughts in the comments section below!