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Bloomberg
This Crypto Kid had a condo for $ 23,000 per month. Then the feds came.
(Bloomberg) – Stefan Qin was only 19 when he claimed to have the secret to cryptocurrency trading. York, he called Virgil Capital. He told potential clients that he had developed an algorithm called Tenjin to monitor cryptocurrency exchanges around the world in order to catch price fluctuations. Just over a year after its launch, he boasted that the fund had returned 500%, a claim that produced a flurry of fresh money from investors. It has become so full of cash, Qin signed a lease in September 2019 for $ 23,000 – a month-long apartment in 50 West, a 64-story luxury condo building in the Financial District with stunning views of lower Manhattan as well as a swimming pool, sauna, steam room, hot tub and golf simulator. In reality, according to federal prosecutors, the operation was a lie, essentially a Ponzi scheme that stole around $ 90 million from over 100 investors to help pay for Qin’s lavish lifestyle and personal investments in companies. high risk bets such as initial coin offers. At one point, in the face of customers’ demands for their money, he repeatedly blamed “mismanagement of cash flow” and “loan sharks in China” for his problems. Last week, Qin, now 24 and expressing remorse, pleaded guilty in federal court in Manhattan to a single count of securities fraud. “I knew what I was doing was wrong and illegal,” he told US District Judge Valerie E. Caproni, who could sentence him to more than 15 years in prison. “I deeply regret my actions and will spend the rest of my life atoning for what I have done. I am deeply sorry for the harm my selfish behavior has done to my investors who trusted me, my employees and my family. Eager investors The case echoes cryptocurrency-like frauds, like that of BitConnect, promising people double- and triple-digit returns and costing investors billions. Ponzi schemes like this show how investors keen to profit from a hot market can easily be led astray by promises of large returns. The Canadian QuadrigaCX exchange collapsed in 2019 as a result of fraud, causing at least $ 125 million in losses for 76,000 investors. As regulatory oversight of the cryptocurrency industry tightens, the industry is littered with inexperienced participants. A number of the roughly 800 crypto funds around the world are run by people with no knowledge of Wall Street or finance, including students and recent graduates who started funds a few years ago. He had been a math genius who planned to become a physicist, he told a website, DigFin, in a profile published in December, just a week before regulators joined him. He describes himself on his LinkedIn page as a “quant with a deep interest and understanding of blockchain technology.” In 2016, he was accepted into a program for high potential entrepreneurs at the University of New South Wales in Sydney with a proposal to use blockchain technology to accelerate foreign exchange transactions. He also attended Minerva Schools, a predominantly online university based in San Francisco, from August 2016 to December 2017, the school confirmed. Crypto Bug He got the crypto bug after an internship at a company in China, he told DigFin. Its task had been to build a platform between two sites, one in China and the other in the United States, to allow the company to arbitrate cryptocurrencies. Convinced that he had come across a business, Qin moved to New York to found Virgil Capital. His strategy, he told investors, would be to exploit the tendency of cryptocurrencies to trade at different prices on different exchanges. It would be “market neutral,” which means that the company’s funds would not be exposed to price fluctuations. “We never try to make easy money,” Qin said. From what he said, Virgil got off to a quick start, yielding 500% in 2017, which attracted more investors eager to participate. A marketing brochure touted monthly returns of 10% – or 2,811% over a three-year period ending in August 2019, according to legal documents. Its assets received an additional shake after the Wall Street Journal featured it in a February 2018 article touting its competence to arbitrate cryptocurrency. Virgil “has seen substantial growth as new investors poured into the fund,” prosecutors said. Missing assets The first cracks appeared last summer. Some investors were “increasingly distraught” by missing assets and incomplete transfers, former investor relations manager Melissa Fox Murphy said in a court statement. (She left the cabinet in December.) Complaints have escalated. “It is now mid-December and my MILLIONS OF DOLLARS ARE NOT TO BE SEEN,” wrote one investor, whose name was withheld in court documents. “It’s a shame the way you treat one of your first and biggest investors.” At around the same time, nine investors with $ 3.5 million in funds requested buybacks from the company’s flagship product, Virgil Sigma Fund LP, prosecutors said. But there was no money to transfer. Qin had emptied the Sigma fund of its assets. Instead of trading in 39 exchanges around the world, as he claimed, Qin spent investor money on personal expenses and to invest in other high-risk, undisclosed investments, including initial offers of exhibits, prosecutors said. stall. Instead, he convinced investors to shift their interests into his VQR Multistrategy Fund, another cryptocurrency fund he set up in February 2020 that used a variety of trading strategies – and still held assets. funds, but it aroused the suspicion of the chief trader, Antonio Hallak. In a phone call Hallak recorded in December, Qin said he needed the money to pay off the “loan sharks in China” he borrowed to start his business, according to court documents filed in an action. lawsuit filed by the Securities and Exchange Commission. He said the loan sharks “could do anything to collect the debt” and that he had a “liquidity problem” that prevented him from paying them back. “I just had such poor cash management to be honest with you,” Qin told Hallak. “I have no money right now, man. It’s so sad. When the trader hesitated to withdraw, Qin attempted to take over the reins of VQR’s accounts. But now the SEC was involved. He got cryptocurrency exchanges to put a holdback on VQR’s remaining assets and, a week later, took legal action. A court-appointed receiver who oversees the fund is seeking to recover investors’ assets, said Nicholas Biase, spokesman for Interim US Attorney General in Manhattan Audrey Strauss. About $ 24 million in assets in the VQR fund have been frozen and should be available for dispersal, he said. In South Korea, when he learned of the investigation, Qin said agreed to return to the United States, prosecutors said. He surrendered to authorities on February 4, pleaded guilty the same day before Caproni, and was released on $ 50,000 bail pending his conviction, scheduled for May 20. While the maximum legal sentence provides for 20 years in prison, as part of a plea deal, prosecutors agreed that he should spend from 151 to 188 months behind bars under federal guidelines for determining the sentence and a fine of up to $ 350,000, a far cry from the career his parents envisioned for him – a physicist, he told DigFin. “They weren’t very happy when I told them I left college to do this crypto thing. Who knows, maybe one day I’ll finish my degree. But what I really want to do is trade cryptocurrencies. For more articles like this, please visit us at bloomberg.com Subscribe now to stay ahead with the most trusted source of business information. © 2021 Bloomberg LP
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