Cryptocurrency hedge fund founder faces 7.5 years in prison for embezzling funds

$55 million were stolen to pay for the culprit's lavish lifestyle.

The founder of two now-defunct cryptocurrency hedge funds has been sentenced to seven and a half years in US prison for embezzling and making unauthorised investments with client funds.

US District Judge Valerie Caproni found that Australian national Stefan He Qin, the founder of Virgil Sigma Fund LP and VQR Multistrategy Fund LP, siphoned away millions of dollars of investors' funds to pay for his extravagant lifestyle.

The prison sentence comes half a year after Qin was charged with security fraud by the Department of Justice.

The Virgil Sigma fund once claimed to have over $90 million under management from dozens of investors. Virgil Sigma gained those funds from advertising to investors that it was a "market-neutral" fund, meaning it was not exposed to any risk from the price of cryptocurrency moving up or down. 

Meanwhile, VQR was a fund that employed a variety of trading strategies aimed at earning money based on the fluctuations in the value of cryptocurrency.

From 2017, rather than investing Virgil Sigma's fund assets with a "market-neutral" trading strategy as advertised, Qin embezzled investor capital from Virgil Sigma and used those funds for personal expenses, personal illiquid investments, and crypto-assets that had nothing to do with the fund's stated arbitrage strategy.

Among the personal expenses and investments were rent for a New York City penthouse apartment and acquiring real estate.

Qin also regularly lied to the fund's investors about the value, location, and status of their investment capital, including through circulating false account statements and bogus tax documents to investors.

In 2020, when Virgil Sigma clients issued redemption requests that Qin could not fulfil, he then doubled down on his scheme by attempting to plunder funds from VQR to satisfy his victim investors' demands. 

By this point, however, investors had discovered the fraud, the court found. 

As a result of these fraudulent activities, Qin lost nearly $55 million of investors' funds.

In addition to the 7.5-year prison sentence, Qin has been sentenced to three years of supervised release, and ordered to forfeit the stolen funds.

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