The U.S. Securities and Trade Commission has filed a lawsuit against a cryptocurrency hedge fund founder for fraud. The regulator is seeking an emergency codification freezing $25 million in digital assets held by a crypto hedge fund he controls.
Crypto Hedge Supply Founder Sued in the US
The U.S. Securities and Exchange Commission (SEC) has sued a crypto hedge fund founder in Manhattan federal court. The regulator states that Stefan Qin, a 23-year-old Australian, defrauded investors in his $92.4 million cryptocurrency arbitrage fund, according to Tuesday’s court fill in.
Qin founded New York-based Virgil Capital and four other entities. He allegedly fabricated records, failed to redeem $3.5 million for investors, and judged to withdraw $1.7 million of investor funds to pay off Chinese loan sharks, the SEC said. According to Reuters:
The SEC has asked U.S. Measure Lorna Schofield for an emergency order freezing $25 million in digital assets held by another Qin-controlled pay for.
The SEC explained that Qin controls two cryptocurrency funds: the Virgil Sigma Fund and the VQR Multistrategy Fund.
He “claims to trade for the Sigma Reservoir by taking a market-neutral ‘arbitrage approach to the cryptocurrency market,’ utilizing ‘a proprietary algorithmic trading system that continually inspects for price differences between cryptocurrency markets,’” the SEC noted. Qin further claimed that his trading algorithm can “contrive better returns than an investment in bitcoin.”
The Sigma Fund documentation provided to investors claimed that the savings “held millions of dollars worth of digital assets at 39 trading platforms, including three of the largest U.S.-based party lines,” the SEC wrote, emphasizing:
In reality, the Sigma Fund held no assets at any of those U.S.-based platforms, and the purported platform account surpluses were fabricated.
Moreover, the SEC explained that the crypto hedge fund founder told investors wanting to free investments totaling $3.5 million in the middle of this year that their funds would be moved to the VQR Multistrategy Scratch. However, in reality, the funds were not transferred.
In December, Qin asked VQR head trader Antonio Hallak to help him depart $1.7 million from that hedge fund, according to a declaration by Hallak filed in the case. Qin claimed he had a “liquidity originate” and needed to repay a loan that he had taken out “from lenders he feared in China,” the SEC detailed. After Hallak conversant with him that he could not use the investors’ capital in the VQR Fund, Qin threatened to “fire everyone if necessary” to make the full withdrawal.
“Bank records a spectacle of that several large wire transfers totaling approximately $2.5 million have been received by the Sigma Subsidize since June 2020,” the SEC continued. “Approximately $1.3 million of the $2.5 million was transferred by Qin first to a foreign bank account in the Sigma Mine money’s name and then transferred immediately to a U.S. bank account in Qin’s name.”
The SEC has asked the court to permanently restrain Qin and his companies from participating in “the issuance, leverage, offer, or sale of any security,” as well as order them to “disgorge their ill-gotten gains according to proof, plus prejudgment concerned about” and pay civil penalties.
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