US Regulator Sues Crypto Hedge Fund Founder — $25 Million in Digital Assets to Be Frozen

The US Securities and Exchange Commission has filed a lawsuit against a cryptocurrency hedge fund founder for fraud. The regulator is requesting an emergency injunction freezing $ 25 million digital assets held by a crypto hedge fund it controls.

Founder of US Crypto Hedge Fund sued

The US Securities and Exchange Commission has sued a founder of a crypto hedge fund in federal court in Manhattan. Regulators claim Stefan Qin, a 23-year-old Australian, defrauded investors in his cryptocurrency arbitrage fund for $ 92.4 million.

Qin founded Virgil Capital, based in New York, and four other companies. He allegedly fabricated records, failed to cash in $ 3.5 million for investors, and tried to withdraw $ 1.7 million in investor money to repay Chinese loan sharks, the SEC said. According to Reuters:

The SEC has asked U.S. Judge Lorna Schofield for an emergency injunction freezing $ 25 million in digital assets held by another Qin-controlled fund.

The SEC stated that Qin controls two cryptocurrency funds: the Virgil Sigma Fund and the VQR Multistrategy Fund.

He “claims to trade for the Sigma Fund using a market-neutral” arbitrage approach to the cryptocurrency market “and” uses a proprietary algorithmic trading system that continuously looks for price differences between cryptocurrency markets, “according to the SEC. Qin went on to claim his Trading algorithm could “achieve better returns than an investment in Bitcoin”.

The Sigma Fund documentation made available to investors alleged that the fund “held multi-million dollar digital assets on 39 trading platforms, including three of the largest US-based platforms,” ​​the SEC wrote, stressing:

In reality, the Sigma Fund did not hold any assets on any of these US-based platforms and the alleged platform account balances were established.

In addition, the SEC stated that the founder of the Crypto Hedge Fund had notified investors who wanted to repay investments totaling $ 3.5 million in the middle of this year that their funds would be moved to the VQR Multistrategy Fund. In reality, however, the funds were not carried over.

In December, Qin asked VQR chief trader Antonio Hallak to help him withdraw $ 1.7 million from this hedge fund, according to a statement filed by Hallak in the case. Qin claimed he had a “liquidity problem” and was about to repay a loan he “took from lenders he feared in China,” the SEC said. After Hallak informed him that he could not use the investors’ capital in the VQR Fund, Qin threatened to “fire everyone if necessary” in order to make the full payout.

“Bank records indicate that the Sigma Fund has received several large wire transfers totaling approximately $ 2.5 million since June 2020,” the SEC continued. “Approximately $ 1.3 million of the $ 2.5 million was first transferred by Qin to a foreign bank account on behalf of the Sigma Fund and then immediately transferred to a US bank account on behalf of Qin.”

The SEC has asked the court to permanently prevent Qin and its companies from participating in the “issue, purchase, offer, or sale of securities” and to order them to “weed out their improper profits based on evidence and prejudice” and pay civil penalties.

What do you think of Qin’s case? Let us know in the comments below.

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