security breach, hot wallet
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. Between the launch of Bitfunder, in or about December 2012, and at least in or about July 2013, JON MONTROLL converted a portion of WeExchange users’ bitcoins to his personal use without the users’ knowledge or consent. For example, MONTROLL exchanged numerous bitcoins taken from WeExchange into United States dollars, then spent those funds on personal expenses, such as travel and groceries.
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to wrongfully withdraw from WeExchange approximately 6,000 bitcoins, with the majority of those coins being wrongfully withdrawn between July 28, 2013, and July 31, 2013. As a result of the Exploit, BitFunder and WeExchange lacked the bitcoins necessary to cover what MONTROLL owed to users.
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