Operator Of Bitcoin Investment Platform Charged With Perjury And Obstruction Of Justice

Jon E. Montroll Allegedly Lied Repeatedly to SEC Staff During Testimony to Conceal Substantial Customer Losses Due to a Software Exploit

Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that JON E. MONTROLL, a/k/a “Ukyo” was taken into federal custody today for giving false sworn testimony and false documentation to the staff of the New York Regional Office of the Securities Exchange Commission (“SEC”).  The defendant is expected to be presented this afternoon in U.S. District Court for the Northern District of Texas, before U.S. Magistrate Judge Jeffrey L. Cureton.

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.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. said:  “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.”

According to the allegations in the Complaint filed today in Manhattan federal court:[1]

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.

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.  In today’s value, the wrongfully withdrawn bitcoin were worth more than $60 million.  As a result of the Exploit, BitFunder and WeExchange lacked the bitcoins necessary to cover what MONTROLL owed to users.

In November 2013, MONTROLL provided sworn testimony to the SEC’s New York Regional Office in connection with their investigation into the Exploit and BitFunder’s activities. In that testimony, MONTROLL denied that the Exploit 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.”  MONTROLL later added that the software 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 produced to the SEC a 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 “Balance Statement”).  The Balance Statement reflected “6,679.78 BTC” on hand as of that date.  In discussing the Balance Statement in his sworn testimony, MONTROLL explained that it represented “the collective pool of funds held for users on BitFunder. The collective pool of BTC held for users on BitFunder – users who transfer bitcoins to BitFunder, this is the total amount that’s being held by BitFunder of those users.”

Contemporaneous digital evidence, including chat logs and transaction data, revealed that the Balance Statement was a misleading fabrication.  Three days into the Exploit, MONTROLL had participated in an internet relay chat with another person (“Person-1”) in which he sought help in tracking down “Stolen coins.”  When that did not work, MONTROLL transferred some of his own bitcoin holdings into WeExchange to conceal the losses.  The Exploit, however, continued.  By the time of the Balance Statement, WeExchange actually held thousands of bitcoins less than MONTROLL had asserted through the false Balance Statement.

When confronted with that evidence during subsequent testimony, MONTROLL lied to SEC staff again.  While MONTROLL 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 Exploit only after the SEC had asked him about it during his first day of testimony and to have no knowledge of the chat with Person-1.

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MONTROLL, 37, of Saginaw, Texas, is charged with two counts of perjury and one count of obstruction of justice. The perjury counts each carry a maximum penalty of five years in prison.  The obstruction of justice count 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.

Mr. Berman praised the outstanding work of the FBI.  He also thanked the SEC, which has filed civil charges against MONTROLL in a separate action.

The prosecution of this case is being overseen by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorney Andrew Thomas is in charge of the case.

The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

[1] As the introductory phrase signifies, the entirety of the text of the Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

Houston Man Indicted by Federal Grand Jury for Cyber Attack on Los Angeles County Superior Court

  LOS ANGELES – A federal Grand Jury has indicted Oriyomi Sadiq Aloba, 32, of Houston, Texas, on multiple counts of unauthorized impairment of a protected computer, unauthorized access to obtain information and aggravated identity theft for a multi-stage phishing attack on the Los Angeles County Superior Court (LASC) computer system.

According to the indictment, over the course of a week in late July 2017, Aloba used the stolen username and passwords of multiple LASC employees to log into the LASC servers and send phishing e-mails to e-mail addresses outside the LASC system, as well as to send test e-mails to himself to test the security features and ensure full access to the account. The phishing e-mails included an e-mail purporting to be a communication from American Express that led to a webpage that asked victims to provide their American Express login credentials, personal identifying information, and credit card information. The link for the fake American Express website used a source code that designated Aloba’s account as the delivery address for the information that the victims input into the website.

In total, Aloba allegedly accessed at least 18 different LASC employee accounts and sent out approximately 2 million phishing e-mails.

A criminal complaint contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty in court.

If Aloba is found guilty of the charged offenses, he would face a maximum sentence of 17 years in prison –10 years for unauthorized transmission, 5 years for the unauthorized accessing a protected computer, and 2 years for the identity theft.

The matter was investigated by the Federal Bureau of Investigation.  The case is being prosecuted by Assistant United States Attorney Robyn Bacon of the Cyber and Intellectual Property Crimes Section, National Security Division.

Attorney General Sessions Announces New Cybersecurity Task Force

Attorney General Jeff Sessions has ordered the creation of the Justice Department’s Cyber-Digital Task Force, which will canvass the many ways that the Department is combatting the global cyber threat, and will also identify how federal law enforcement can more effectively accomplish its mission in this vital and evolving area.

“The Internet has given us amazing new tools that help us work, communicate, and participate in our economy, but these tools can also be exploited by criminals, terrorists, and enemy governments,” Attorney General Sessions said.  “At the Department of Justice, we take these threats seriously.  That is why today I am ordering the creation of a Cyber-Digital Task Force to advise me on the most effective ways that this Department can confront these threats and keep the American people safe.”

The Task Force will be chaired by a senior Department official appointed by the Deputy Attorney General and will consist of representatives from the Department’s Criminal Division, the National Security Division, the United States Attorney’s Office community, the Office of Legal Policy, the Office of Privacy and Civil Liberties, the Office of the Chief Information Officer, the ATF, FBI, DEA, and the U.S. Marshals Service.  The Deputy Attorney General may invite representatives from other Department of Justice components and from other federal agencies to participate in the Task Force. He may also establish subcommittees to focus the Task Force’s efforts.

The Task Force will be responsible for issuing a report to the Attorney General by the end of June.

The Attorney General has asked the Task Force to prioritize its study of efforts to interfere with our elections; efforts to interfere with our critical infrastructure; the use of the Internet to spread violent ideologies and to recruit followers; the mass theft of corporate, governmental, and private information; the use of technology to avoid or frustrate law enforcement; and the mass exploitation of computers and other digital devices to attack American citizens and businesses.  The scope of the Task Force’s report is not limited to these categories.