Founder Of $90 Million Cryptocurrency Hedge Fund Sentenced To Extra Than Seven Years In Jail | USAO-SDNY


Audrey Strauss, United States Lawyer for the Southern District of New York, introduced that STEFAN HE QIN, the founding father of the Virgil Sigma Fund LP (“Virgil Sigma”) and the VQR Multistrategy Fund LP (“VQR”), a pair of cryptocurrency hedge funds in New York which claimed to have over $100 million {dollars} in investments, was sentenced right this moment to 90 months in jail.  On February 4, 2021, QIN pled responsible to at least one rely of securities fraud earlier than U.S. District Choose Valerie E. Caproni, who imposed right this moment’s sentence.

U.S. Lawyer Audrey Strauss stated:  “In response to Stefan He Qin, founding father of Virgil Sigma and VQR, a pair of cryptocurrency hedge funds in New York, Virgil had a acknowledged market technique of ‘market impartial,’ secure investments.  Qin’s buyers quickly found that his methods weren’t way more than a disguised means for him to embezzle and make unauthorized investments with shopper funds.  When confronted with redemption requests he couldn’t fulfill, Qin doubled down on his scheme by trying to plunder funds from VQR to fulfill his sufferer buyers’ calls for.  Qin’s brazen and wide-ranging scheme left his beleaguered buyers within the lurch for over $54 million, and he has now been handed the appropriately prolonged sentence of over seven years in federal jail.”  

In response to the Data and statements made in open court docket:

Background

STEFAN HE QIN is a 24-year previous Australian nationwide.  Between 2017 via 2020, QIN owned and managed two cryptocurrency funding funds, Virgil Sigma and VQR, each of which had been positioned in New York, New York.   Since its creation, Virgil Sigma presupposed to make use of a technique to earn earnings from arbitrage alternatives within the cryptocurrency market.   This technique was touted by QIN to the investing public as “market-neutral,” that means the fund was not uncovered to any threat from the value of cryptocurrency transferring up or down and due to this fact offered a comparatively secure and liquid funding. Till lately, Virgil Sigma presupposed to have over $90 million underneath administration from dozens of buyers, together with many in america.  In response to its public advertising and marketing supplies, Virgil Sigma has been worthwhile in each month from August 2016 to the current, with the only real exception of March 2017.  QIN additionally recurrently participated in calls with Virgil Sigma buyers and different types of public communication the place he touted the expansion and success of Virgil Sigma.  For instance, in February 2018, QIN and his fund had been profiled within the Wall Avenue Journal.

In or about February 2020, QIN based VQR. VQR employed a wide range of buying and selling methods and was poised to make or lose cash primarily based on the fluctuations within the worth of cryptocurrency and was not market impartial.  QIN was the only real proprietor of VQR’s basic associate, however was not concerned in VQR’s day-to-day operations.  As an alternative, VQR had its personal buying and selling employees, together with a head dealer (the “Head Dealer”) and different funding professionals.  Till lately, VQR had at the very least roughly $24 million underneath administration from buyers. 

Qin’s Scheme to Steal Property from Virgil Sigma

Since 2017, QIN engaged in a scheme to steal belongings from Virgil Sigma and defraud its buyers.  Reasonably than investing the fund’s belongings in a cryptocurrency arbitrage buying and selling technique as marketed, QIN embezzled investor capital from Virgil Sigma and used the funds for functions apart from the purported arbitrage buying and selling technique, together with: (a) utilizing a considerable portion of investor capital stolen from Virgil Sigma to pay for private bills equivalent to meals, providers, and hire for a penthouse residence in New York Metropolis; (b) utilizing a considerable portion of investor capital from Virgil Sigma to make private, usually illiquid investments in different entities that had nothing to do with cryptocurrencies.  For instance, in or about October 2018, QIN invested tons of of 1000’s of {dollars} stolen from Virgil Sigma into an actual property funding; and (c) utilizing a considerable portion of investor capital from Virgil Sigma to spend money on crypto-assets that had nothing to do with the fund’s acknowledged arbitrage technique.  For instance, in or about 2018, QIN invested funds from Virgil Sigma into sure preliminary coin choices, a speculative type of investing in new problems with cryptocurrency.  On account of these and different fraudulent actions, QIN dissipated practically all the investor capital in Virgil Sigma.  QIN additionally recurrently lied to the fund’s buyers concerning the worth, location, and standing of their funding capital, together with via false account statements that QIN ready and bogus tax paperwork that he circulated to his buyers. 

Qin Makes an attempt to Steal Property From VQR to pay Virgil Sigma Buyers

In or about December 2020, confronted with redemption requests from the Virgil Sigma fund that he couldn’t meet, QIN demanded that the Head Dealer at VQR wind down all buying and selling positions at VQR and switch a portion of the funds to QIN in order that QIN may use that cash to repay these redemptions to Virgil Sigma buyers.  QIN issued the demand despite the fact that the Head Dealer suggested QIN that closing out VQR’s then-current buying and selling positions, relatively than holding these positions in accordance with VQR’s directional buying and selling technique, would end in losses to VQR’s buyers.  At QIN’s path, the Head Dealer accordingly closed out VQR’s positions and turned over entry to VQR’s buying and selling accounts to QIN.  QIN subsequently tried to take management of VQR’s belongings as a way to allow QIN to fulfill sure Virgil Sigma investor redemption requests.

The Virgil Sigma fund and VQR have ceased operations and the liquidation and distribution of belongings is being dealt with by a court-appointed receiver within the matter of S.E.C. v. Qin, 20 Civ. 10849. 

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QIN, 24, was additionally sentenced to 3 years of supervised launch, and ordered to forfeit $54,793,532. 

Ms. Strauss praised the work of the Division of Homeland Safety, Homeland Safety Investigations.  She additional thanked the Securities and Change Fee for its cooperation and help on this investigation.   

This case is being dealt with by the Workplace’s Securities and Commodities Fraud Job Drive.  Assistant U.S. Lawyer Daniel Tracer is accountable for the prosecution.   



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