Australian link to jailing of cryptocurrency fraudster

A man who embezzled bitcoins stored in an Australian ‘wallet’ has been jailed in the US.

A man who embezzled bitcoins stored in an Australian “wallet” before concealing the fact that hackers also stole cryptocurrency now worth more than $90 million has been jailed in the US.

Texas man Jon Montroll, 38, was sentenced to 14 months in jail for securities fraud and obstruction of justice over the crimes, after about 6000 bitcoins — now worth $91m — were stolen by hackers from an Australian depository. The charges relate to his trading platform BitFunder and the Australian company WeExchange, where clients’ bitcoins were stored.

US attorney Geoffrey Berman said Montroll lied to both clients and authorities.

“Jon Montroll lied to his investors and after his lies caught the attention of the SEC, lied to them, too,” he said. “The sentence he received serves as a reminder that this office will not overlook those who violate their obligation to be honest with investors and the regulators working to protect them.”

In the six months leading up to the hack, Montroll converted some of the bitcoins held in WeExchange into US dollars, using them to pay for travel and even groceries. Then in July 2013, hackers exploited the BitFunder systems and were able to take out about 6000 bitcoins — which were then worth an estimated $US775,075 — from WeExchange.

The US Justice Department said Montroll then concealed the theft from his customers, and continued to offer a crypto­currency-based security he named “Ukyo. Loan” to potential new investors who were not informed that his businesses had lost clients’ money.

“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,” the department said in a statement.

“As a result of his omissions and misrepresentations, Montroll raised approximately 978 bitcoins through Ukyo. Loan after his discovery of the exploit.”

Those bitcoins would now be worth $14.9m.

His Australian business partner in WeExchange, Graeme Tee — who has not been accused of any crimes — last year told The Australian that he suffered a “quite large” loss in the 2013 hack, which he found out about only the following year.

“I had invested time, bitcoin and effort into WeExchange with no returns, it was also a factor in my divorce,” Mr Tee said after charges were laid against Montroll last year.

The US Securities and Exchange Commission launched an investigation following the hack.

“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,” the DOJ said.

The DOJ also said Montroll lied about, among other things, the timing of his discovery of the exploit.