Federal authorities on Wednesday brought fraud charges against BitFunder, a defunct cryptocurrency stock exchange, and arrested the company's founder for obstruction of justice.

The Securities and Exchange Commission (SEC) charged the company with defrauding users. The Justice Department separately arrested founder Jon Montroll and charged him with lying to the SEC during their probe into the fraud allegations.

ADVERTISEMENT

“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,” said Geoffrey Berman, U.S. Attorney for the Southern District of New York, on Wednesday. “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.”

Montroll allegedly misled the securities regulator in sworn testimony in an investigation into BitFunder.

The DOJ is charging him with two counts of perjury and one count of obstruction of justice which, combined, could put Montroll in prison for a maximum of 30 years.

The SEC is alleging that BitFunder and Montroll defrauded users by misusing their bitcoins and not disclosing a cyberattack that resulted in the theft of over 6,000 bitcoins. The agency also charged that BitFunder operated as an unregistered online 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,” Marc Berger, Director of the SEC’s New York Regional Office, said Wednesday.

The SEC is seeking permanent injunctions and unspecified penalties against Montroll and BitFunder.

Berger said that the SEC would continue to target similar operations.

The charges against BitFunder follow a hearing in which SEC Chairman Jay Clayton pledged to step up action against cryptocurrency companies he believes are violating the law.