The US Securities and Exchange Commission has filed a lawsuit against the founder of a cryptocurrency hedge fund for fraud. The regulator is seeking an emergency order to freeze $25 million in digital assets held by crypto hedge funds he controls.
Crypto hedge fund founder sues in the U.S.
The US Securities and Exchange Commission (SEC) sued the founder of an encrypted hedge fund in Manhattan Federal Court. The regulator alleges that according to court documents on Tuesday, 23-year-old Australian Stefan Qin deceived investors in his $92.4 million cryptocurrency arbitrage fund.
Qin founded Virgil Capital, headquartered in New York, and four other entities. The SEC stated that he was suspected of fabricating records, failed to redeem US$3.5 million for investors, and tried to withdraw US$1.7 million of investor funds to repay China’s usury. According to Reuters:
The SEC has asked U.S. Judge Lorna Schofield to issue an emergency order to freeze $25 million in digital assets held by another fund controlled by Qin.
The US Securities and Exchange Commission explained that Qin controls two cryptocurrency funds: Virgil Sigma Fund and VQR Multi-Strategy Fund.
The SEC pointed out that he “claimed to enter the cryptocurrency market by adopting a market-neutral’arbitrage method, using a proprietary algorithmic trading system to continuously scan price differences between the cryptocurrency markets to trade sigma funds’,” the SEC noted. Qin also claimed that his trading algorithm “can generate better returns than investing in Bitcoin.”
The SEC wrote that the Sigma fund documents provided to investors stated that the fund “holds millions of dollars worth of digital assets on 39 trading platforms, including the three largest platforms in the United States,” he emphasized:
In fact, the Sigma Fund does not hold any assets on these US platforms, and the platform account balance is said to be false.
In addition, the U.S. Securities and Exchange Commission (SEC) explained that the founder of this crypto hedge fund told investors who wanted to redeem a total of $3.5 million in investments this year, and their funds will be transferred to the VQR Multistrategy Fund. However, in reality, the funds have not been transferred.
According to a statement submitted by Harak in the case, in December of last year, Qin asked VQR chief trader Antonio Hallak to help him withdraw US$1.7 million from the hedge fund. The US Securities and Exchange Commission (SEC) explained in detail that Qin said he had “liquidity problems” and needed to repay a loan he had lent “from the Chinese lender he was worried about.” After Hallak informed him that he could not use the investor funds of the VQR Fund, Qin Yang threatened to “fire everyone if necessary” to withdraw the funds in full.
The SEC continued: “Bank records show that since June 2020, the Sigma Fund has received several large wire transfers totaling approximately US$2.5 million.” “Of the US$2.5 million, approximately US$1.3 million was first paid by Qin. Sigma Fund was transferred to a foreign bank account, and then immediately transferred to a U.S. bank account in the name of Qin.”
The SEC has asked the court to permanently prohibit Qin and his company from participating in “any securities issuance, purchase, quotation or sale”, and order them to “spread their illegitimate income based on evidence, with judgment “interest” and pay civil fines.
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