Audrey Strauss, United States Legal professional for the Southern District of New York, and Peter C. Fitzhugh, Particular Agent in Cost of the New York Area Workplace of Homeland Safety Investigations (“HSI”), introduced that STEFAN HE QIN, the founding father of the Virgil Sigma Fund LP (“Virgil Sigma”) and the VQR Multistrategy Fund LP (“VQR”), a pair of cryptocurrency hedge funds in New York, New York, with over $100 million in investments, was charged with one rely of securities fraud and pled responsible immediately in Manhattan federal courtroom. For years, QIN stole investor cash from Virgil Sigma and, in December 2020, QIN tried to steal investor cash from VQR to pay again his traders in Virgil Sigma. QIN pled responsible immediately earlier than United States District Decide Valerie Caproni.
U.S. Legal professional Audrey Strauss stated: “Stefan He Qin drained virtually all the belongings from the $90 million cryptocurrency fund he owned, stealing traders’ cash, spending it on indulgences and speculative private investments, and mendacity to traders in regards to the efficiency of the fund and what he had finished with their cash. Then, as he additional admitted immediately, Qin tried to steal cash from one other fund he managed to satisfy redemption calls for of the defrauded traders within the former fund. The entire home of playing cards has been revealed, and Qin now awaits sentencing for his brazen thievery.”
HSI Particular Agent in Cost Peter C. Fitzhugh stated: “Virgil Sigma and VQR, two multimillion-dollar cryptocurrency funding funds, had been revealed to be slush funds for Qin to reside his extravagant life-style. Qin orchestrated this reprehensible felony scheme for a few years, making misrepresentations and false guarantees that coaxed traders into pouring thousands and thousands of {dollars} into fraudulent cryptocurrency corporations, all of the whereas stealing the hard-earned cash of his traders. Moreover, Qin mastered the artwork of trickery by representing these corporations as worthwhile funding methods so extra victims fell to his techniques and had been defrauded of almost $100 million. The HSI New York El Dorado Process Drive, with our unimaginable legislation enforcement partnerships, are dedicated to aggressively pursue fraud in all varieties, no matter how elaborate and worthwhile these schemes seem. In immediately’s technological world, there are more and more extra alternatives for fraudsters to make the most of folks, and with Qin pleading responsible to his deceitful acts, HSI and our companions remind those that try and defraud victims in any method, your fraud can be uncovered and you may be delivered to justice.”
In accordance with the Data and statements made in open courtroom:
Background
STEFAN HE QIN is a 24-year-old Australian nationwide. Between 2017 via 2020, QIN owned and managed two cryptocurrency funding funds, Virgil Sigma and VQR, each of which had been situated in New York, New York. Since its creation, Virgil Sigma presupposed to make use of a technique to earn income from arbitrage alternatives within the cryptocurrency market, particularly, by utilizing a buying and selling algorithm to make the most of worth variations for a lot of cryptocurrencies, together with Bitcoin and others, in roughly 40 completely different exchanges all over the world, together with three exchanges situated in the USA. This technique was touted by QIN to the investing public as “market-neutral,” that means the fund was not uncovered to any threat from the worth of cryptocurrency shifting up or down and subsequently supplied a comparatively secure and liquid funding. QIN exercised day-to-day management over Virgil Sigma and was answerable for monitoring the fund’s balances at completely different buying and selling exchanges, designing the algorithms to implement arbitrage buying and selling, and getting ready month-to-month investor statements. QIN additionally repeatedly participated in calls with Virgil Sigma traders and different types of public communication the place he touted the expansion and success of Virgil Sigma. Till just lately, Virgil Sigma presupposed to have over $90 million beneath administration from dozens of traders, together with many in the USA. In accordance with its public advertising and marketing supplies, Virgil Sigma has been worthwhile in each month from August 2016 to the current, with the only exception of March 2017.
In or about February 2020, QIN based VQR. VQR employed quite a lot of buying and selling methods and was poised to make or lose cash based mostly on the fluctuations within the worth of cryptocurrency and was not market impartial. QIN was the only proprietor of VQR’s common companion, however was not concerned in VQR’s day-to-day operations. As an alternative, VQR had its personal buying and selling employees, together with a head dealer (the “Head Dealer”) and different funding professionals. Till just lately, VQR had no less than roughly $24 million beneath administration from traders.
Qin’s Scheme to Steal Property from Virgil Sigma
Since 2017, QIN engaged in a scheme to steal belongings from Virgil Sigma and defraud its traders. Fairly than investing the fund’s belongings in a cryptocurrency arbitrage buying and selling technique as marketed, QIN embezzled investor capital from Virgil Sigma and used the funds for functions aside from the purported arbitrage buying and selling technique, together with: (a) utilizing a considerable portion of investor capital stolen from Virgil Sigma to pay for private bills akin to meals, companies, and lease for a penthouse house in New York, New York; (b) utilizing a considerable portion of investor capital from Virgil Sigma to make private, usually illiquid, investments in different entities that had nothing to do with cryptocurrencies (for instance, in or about October 2018, QIN invested tons of of hundreds of {dollars} stolen from Virgil Sigma in an actual property funding); and (c) utilizing a considerable portion of investor capital from Virgil Sigma to spend money on crypto-assets that had nothing to do with the fund’s acknowledged arbitrage technique (or instance, in or about 2018, QIN invested funds from Virgil Sigma in sure preliminary coin choices, a speculative type of investing in new problems with cryptocurrency). Because of these and different fraudulent actions, QIN dissipated almost all the investor capital in Virgil Sigma.
In the midst of stealing belongings from Virgil Sigma, QIN repeatedly lied to the fund’s traders in regards to the worth, location, and standing of their funding capital. These lies included an array of investor and public communications, together with:
(a) QIN ready and disseminated month-to-month statements to traders purporting to file the worth of their holdings in Virgil Sigma. The quantities recorded in these statements didn’t precisely mirror the outcomes of cryptocurrency buying and selling. As an alternative, the quantities had been made up by QIN and didn’t disclose the dissipation of belongings by QIN.
(b) QIN additionally periodically ready advertising and marketing supplies for the investing public, together with abstract reviews referred to as “tear sheets” that fraudulently reported that Virgil Sigma was incomes exceptional income, usually with double-digit returns in a single month, month after month. For instance, in or about February and in or about April 2017, QIN falsely reported that Virgil Sigma had earned 48.7% and 35.5% returns, respectively.
(c) On an annual foundation, QIN ready spreadsheets that purported to indicate Virgil Sigma’s balances on the roughly 40 exchanges the place Virgil Sigma purportedly traded with a purpose to put together tax varieties for the fund’s traders, also referred to as schedule Ok-1s. As QIN effectively knew, nonetheless, these spreadsheets and the ensuing schedule Ok-1s had been false and considerably overstated Virgil Sigma’s balances and buying and selling exercise on the exchanges.
Because of QIN’s lies in regards to the exercise and success of Virgil Sigma in these and different communications, QIN was capable of steadily appeal to new capital to Virgil Sigma thereby (a) guaranteeing that he was capable of repay traders’ redemption requests, and (b) projecting to the general public the looks of continued progress. For instance, after QIN and the purported success of his fund had been profiled within the Wall Road Journal in or about February 2018, Virgil Sigma skilled substantial progress as new traders flocked to the fund.
Qin Makes an attempt to Steal Property from VQR to Pay Virgil Sigma Buyers
In the summertime of 2020, QIN was having issue assembly redemption requests from traders in Virgil Sigma. With the intention to entry funds to make these redemptions, and with a purpose to conceal his fraudulent actions described above, QIN tried to steal investor capital from VQR to pay redemptions to Virgil Sigma traders. After a number of Virgil Sigma traders requested redemptions that Virgil Sigma couldn’t pay, QIN satisfied these traders that fairly than redeem the funds outright, the traders would conform to have the funds withdrawn from Virgil Sigma and transferred into an funding in VQR. After months handed and no funds had been transferred to VQR, QIN falsely instructed these traders that he had requested the switch of funds from Virgil Sigma, however that the switch was delayed due to an middleman financial institution. QIN confirmed a few of these traders wire switch requests with a purpose to bolster the impression that QIN was actually attempting to switch the funds from Virgil Sigma to VQR. Virgil Sigma’s financial institution couldn’t, nonetheless, effectuate these wire transfers as a result of QIN had dissipated all of Virgil Sigma’s belongings.
In or about December 2020, confronted with further redemption requests that he couldn’t meet, QIN demanded that the Head Dealer at VQR wind down all buying and selling positions at VQR and switch a portion of the funds to QIN in order that QIN may use that cash to repay these redemptions to Virgil Sigma traders. QIN issued the demand though the Head Dealer suggested QIN that closing out VQR’s then-current buying and selling positions, fairly than holding these positions in accordance with VQR’s directional buying and selling technique, would end in losses to VQR’s traders. In the midst of these conversations, QIN threatened that if the Head Dealer didn’t sufficiently expedite that course of, QIN, as the only proprietor of VQR’s common companion, would want to take over management of all of VQR’s accounts with a purpose to entry the funds. At QIN’s route, the Head Dealer accordingly closed out VQR’s positions and turned over entry to VQR’s buying and selling accounts to QIN. QIN subsequently tried to take management of VQR’s belongings with a purpose to allow QIN to satisfy sure Virgil Sigma investor redemption requests.
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QIN, 24, pled responsible to at least one rely of securities fraud. This cost carries a most time period of 20 years in jail. The utmost potential sentence on this case is prescribed by Congress and is supplied right here for informational functions solely, as any sentencing of the defendant can be decided by the choose. Sentencing has been scheduled for Could 20, 2021.
Ms. Strauss praised the work of Homeland Safety Investigations. She additional thanked the Securities and Alternate Fee for its cooperation and help on this investigation.
This case is being dealt with by the Workplace’s Securities and Commodities Fraud Process Drive. Assistant U.S. Legal professional Daniel Tracer is answerable for the prosecution.
