founder of $ 90 million cryptocurrency hedge fund sentenced to more than seven years in prison | USAO-SDNY



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Audrey Strauss, United States Attorney for the Southern District of New York, announced that STEFAN HE QIN, founder of Virgil Sigma Fund LP (“Virgil Sigma”) and VQR Multistrategy Fund LP (“VQR”), a pair Hedge funds in New York City, which claimed to have more than $ 100 million in investments, were today sentenced to 90 months in prison. On February 4, 2021, QIN pleaded guilty to one count of securities fraud before U.S. District Judge Valerie E. Caproni, who imposed today’s sentence.

US lawyer Audrey Strauss said: “According to Stefan He Qin, founder of Virgil Sigma and VQR, a pair of cryptocurrency hedge funds in New York City, Virgil had a market strategy declared to be ‘market neutral’, safe investments. Qin’s investors soon discovered that his strategies were little more than a disguised way for him to embezzle funds and make unauthorized investments with client funds. Faced with redemption demands that he could not meet, Qin doubled down on his ploy by attempting to plunder VQR funds to satisfy the demands of his victim investors. Qin’s brazen and sweeping ploy has left his beleaguered investors in deep trouble for over $ 54 million, and he has now been sentenced to a sufficiently long term of over seven years in federal prison.

According to information and statements made in open court:

Background

STEFAN HE QIN is a 24-year-old Australian national. Between 2017 and 2020, QIN owned and controlled two cryptocurrency investment funds, Virgil Sigma and VQR, both located in New York, New York. Since its inception, Virgil Sigma has claimed to employ a strategy to profit from arbitrage opportunities in the cryptocurrency market. This strategy was presented by QIN to the investing public as ‘market neutral’, which means that the fund was not exposed to any risk related to the rise or fall in the price of the cryptocurrency and therefore constituted a relatively safe and liquid investment. Until recently, Virgil Sigma claimed to have over $ 90 million under management from dozens of investors, many in the United States. According to its public marketing materials, Virgil Sigma has been profitable every month from August 2016 to present with the sole exception of March 2017. QIN has also regularly participated in investor calls for Virgil Sigma and others. forms of public communication in which he praised the growth and success of Virgil Sigma. For example, in February 2018, QIN and its fund were featured in the Wall Street Journal.

Around February 2020, QIN founded VQR. VQR used various trading strategies and was on the verge of winning or losing money based on fluctuations in the value of the cryptocurrency and was not neutral in the market. QIN was the sole owner of the general partner of VQR, but was not involved in the day-to-day operations of VQR. Instead, VQR had its own trading staff, including a Chief Trader (the “Chief Trader”) and other investment professionals. Until recently, VQR had at least about $ 24 million under management from investors.

Qin’s ploy to steal Virgil Sigma’s assets

Since 2017, QIN has been engaged in a scheme to steal Virgil Sigma’s assets and defraud its investors. Rather than investing the fund’s assets in a cryptocurrency arbitrage trading strategy as advertised, QIN embezzled investors’ capital from Virgil Sigma and used the funds for purposes other than the purported trading strategy of ‘arbitration, including: (a) using a substantial portion of investors’ capital stolen from Virgil Sigma to pay for personal expenses such as food, utilities and the rent of a penthouse apartment in New York City; (b) use a substantial portion of the capital of Virgil Sigma investors to make personal, often illiquid, investments in other entities that had nothing to do with cryptocurrencies. For example, around October 2018, QIN invested hundreds of thousands of dollars stolen from Virgil Sigma in a real estate investment; and (c) using a substantial portion of the capital of Virgil Sigma’s investors to invest in crypto-assets that had nothing to do with the fund’s stated arbitrage strategy. For example, around 2018, QIN invested funds from Virgil Sigma in some initial coin offerings, a speculative form of investment in new cryptocurrency issues. As a result of these and other fraudulent activities, QIN has dissipated almost all of Virgil Sigma’s investor capital. QIN also routinely lied to fund investors about the value, location and status of their investment capital, including through fake account statements prepared by QIN and fake tax documents that it distributed to its investors. investors.

Qin tries to steal VQR assets to pay Virgil Sigma investors

Around December 2020, faced with redemption requests from the Virgil Sigma fund that it could not meet, QIN demanded that the chief trader of VQR reduce all trading positions at VQR and transfer part of the funds to QIN so that QIN can use this money to reimburse these buyouts to Virgil Sigma investors. QIN issued the request even though the chief trader informed QIN that closing VQR’s then current trading positions, rather than maintaining those positions in accordance with VQR’s directional trading strategy, would result in losses for VQR investors. . Under the leadership of QIN, the Head Trader therefore closed the positions of VQR and transferred access to trading accounts from VQR to QIN. QIN subsequently attempted to take control of VQR’s assets in order to allow QIN to respond to certain buyout requests from Virgil Sigma investors.

The Virgil Sigma fund and VQR have ceased their activities and the liquidation and distribution of assets are managed by a receiver in matters of SEC c. Qin, 20 Civ. 10849.

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QIN, 24, was also sentenced to three years of probation and ordered to confiscate $ 54,793,532.

Ms Strauss praised the work of the Department of Homeland Security, investigating homeland security. She further thanked the Securities and Exchange Commission for its cooperation and assistance in this investigation.

This case is being handled by the Bureau’s Securities and Commodities Fraud Working Group. US Deputy Prosecutor Daniel Tracer is in charge of the prosecution.

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