The Securities and Exchange Commission has secured a court order to freeze the assets of a New York-based cryptocurrency hedge fund that it claimed bilked investors out of $92.4 million.
Unsealing its complaint against Stefan Qin and his associated businesses, cryptocurrency arbitrage fund Virgil Capital alongside four other entities, the SEC claimed the 23-year-old Australian had lied to investors and misappropriated funds.
The SEC filed last week to secure a court order freezing $25 million in digital assets held by another Qin-controlled fund and halting their operations. Further, the court ordered an accounting, expedited discovery, as well as prohibiting the destruction of documents.
Explaining the background, the SEC says Stefan Qin raised funds from investors by misrepresenting his business performance and regulatory status. In addition, he offered their clients fake financial statements and forged audit documents.
The complaint further alleges that the fraudsters claimed in their marketing materials that the fund will invest solely in cryptocurrency trading based on a proprietary algorithm. In fact, the money never went toward digital asset investments. Instead, Qin diverted millions of dollars from the fund to his personal accounts and sought to pay off Chinese loan sharks.
The watchdog further charges Qin with fabricating records, failing to redeem $3.5 million for investors, and trying to withdraw $1.7 million of investor funds to pay back loans.
The SEC statement further explains:
“Since at least July 2020, Qin and Virgil Capital have told investors who requested redemptions from the Sigma Fund that their interests would be transferred instead to another fund under the ultimate control of Qin but with separate management and operations, the VQR Multistrategy Fund LP. The complaint alleges that no funds were transferred and the redemption requests remain outstanding. The SEC’s complaint further alleges that Qin is actively attempting to misappropriate assets from the VQR Fund and to raise new investments in the Sigma Fund.”
The case is not the SEC’s first against a fund managing crypto assets and marks an extension of its regulatory crackdown from cryptocurrencies to those investing in them. Since cryptocurrencies rose to prominence over the past couple of years, many crypto funds have emerged in order to attempt to capitalize on the new interest in the space.