The founder of a pair of cryptocurrency hedge funds in New York has been charged for stealing $90 million from clients.
According to the US Department of Justice (DoJ), Stefan He Qin, the founder of Virgil Sigma Fund LP and VQR Multistrategy Fund LP, siphoned away investor funds for "years" while enjoying an extravagant lifestyle.
The case was presided over by US District Judge Valerie Caproni at the United States District Court for the Southern District of New York.
On Thursday, US prosecutors said that from 2017 and throughout 2020, Qin was the operator of the two New York-based funds. Virgil Sigma was touted as a fund that took advantage of speculative cryptocurrency market opportunities and claimed to use a trading algorithm to reap profits by monitoring price changes across exchanges.
The 24-year-old Australian national hoodwinked investors into believing that the fund was a safe bet as a "market-neutral" fund. During investor meetings and PR calls, Qin said that Virgil Sigma was profitable month after month -- with the exception of March 2017 -- and also claimed that over $90 million in assets were under active management.
In February 2020, Qin created VQR, a hedge fund that "was poised to make or lose money based on the fluctuations in the value of cryptocurrency and was not market-neutral," according to the DoJ. This fund held $24 million on behalf of investors.
However, Virgil Sigma funds were embezzled. The cash was used by Qin to pay for personal expenses including penthouse rent and services, as well as to make personal cryptocurrency and speculative investments, including those in Initial Coin Offerings (ICOs) that had nothing to do with the hedge fund.
It did not take long for "nearly all of the investor capital" in Virgil Sigma to drain away, US prosecutors say.
As Qin continued to pretend that the hedge fund was making a substantial profit, more investors flocked to the fund. In turn, he was able to pay off client redemption requests -- at least, until the summer of 2020.
Qin was suddenly unable to meet redemption requests, and so attempted to steal from VQR by way of fund transfers. In December 2020, he ordered the head trader at VQR to wind down all trading positions and transfer the funds to Virgil Sigma.
By this point, the fraud had been exposed.
"Stefan He Qin drained almost all of the assets from the $90 million cryptocurrency fund he owned, stealing investors' money, spending it on indulgences and speculative personal investments, and lying to investors about the performance of the fund and what he had done with their money," commented US Attorney Audrey Strauss. "The whole house of cards has been revealed, and Qin now awaits sentencing for his brazen thievery."
Qin pled guilty to one count of securities fraud, an offense that carries a maximum term of 20 years in prison. Sentencing is scheduled for May.
Last month, a San Francisco resident was sentenced to six months in prison and was ordered to pay damages of $4.4 million after being found guilty of defrauding investors. The 33-year-old represented himself as a cryptocurrency and ICO consultant, but once he secured investments, he simply embezzled the funds.
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