The US Securities and Exchange Commission has filed a lawsuit against a founder of a cryptocurrency hedge fund for fraud. The regulator is seeking an emergency warrant to freeze $ 25 million in digital assets held by a cryptohedge fund it manages.
Founder of Crypto Hedge Fund Indicted in US
The U.S. Securities and Exchange Commission (SEC) has sued a crypto hedge fund founder in Manhattan federal court. The regulator alleges that Stefan Qin, a 23-year-old Australian, has defrauded investors in his $ 92.4 million cryptocurrency arbitration fund, according to Tuesday’s indictment.
Qin founded New York-based Virgil Capital and four other entities. He reportedly made up records, failed to buy back $ 3.5 million for investors and attempted to withdraw $ 1.7 million in investor money to pay off Chinese loan sharks, the SEC said. According to Reuters:
The SEC has asked U.S. Judge Lorna Schofield for an emergency order to freeze $ 25 million worth of digital assets from another Qin-controlled fund.
The SEC explained that Qin manages two cryptocurrency funds: the Virgil Sigma Fund and the VQR Multistrategy Fund.
He “claims to trade for the Sigma Fund by following a market neutral ‘arbitrage approach to the cryptocurrency market,’ using a proprietary algorithmic trading system that constantly scans for price differences between cryptocurrency markets,” the SEC said. Qin further claimed that his trading algorithm ” can generate a better return than an investment in bitcoin ‘.
The Sigma Fund documentation provided to investors claimed the fund had “millions of dollars in digital assets across 39 trading platforms, including three of the largest US-based platforms,” the SEC wrote, stressing:
In reality, the Sigma Fund didn’t own any assets on any of those US-based platforms, and the alleged platform account balances were made up.
In addition, the SEC explained that the founder of the cryptohedge fund had told investors who wanted to repay a total of $ 3.5 million by the middle of this year that their money would be transferred to the VQR Multistrategy Fund. In reality, however, the funds were not transferred.
In December, Qin asked VQR chief trader Antonio Hallak to help him withdraw $ 1.7 million from that hedge fund, according to a statement by Hallak filed in the case. Qin claimed he had a “liquidity problem” and had to repay a loan he took out “from lenders he feared in China,” the SEC said. After Hallak informed him that he could not use the capital of the investors in the VQR fund, Qin threatened to “fire everyone if necessary” to do the full withdrawal.
“Bank records indicate that the Sigma Fund has received several large bank transfers totaling approximately $ 2.5 million since June 2020,” the SEC continued. “About $ 1.3 million of the $ 2.5 million was first transferred by Qin to a foreign bank account in the name of the Sigma Fund and then immediately transferred to a US bank account in the name of Qin.”
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