The US Department of Justice (DoJ) has sentenced the founder of two crypto hedge funds to over seven years in prison after defrauding investors out of $54 million. Stefan He Qin received his sentence from US District Judge Valerie Caproni.
Qin is a 24-year old Australian who founded and operated two cryptocurrency investment funds named Virgil Sigma and VQR. The two firms were launched in 2017 and February 2020, respectively.
Embezzled Funds to Pay for Personal Expenses
Virgil Sigma solicited funds from investors by promising them that he would invest in cryptocurrency arbitrage schemes. However, the statement by the DoJ revealed that instead of investing the money, Qin was using the capital to pay for his personal expenses and make private investments.
To hide his embezzlement, Qin falsified financial statements and tax records. These false statements showed that the firms were profitable. The only record of loss was filed in March 2017.
Qin regularly lied to his clients about the nature of their investment capital. He falsified Sigma’s balance sheets to show that the firm had $90 million in assets. However, he had spent most of the investor capital. To repay Sigma investors, Qin transferred assets from VQR to Sigma.
In December last year, the Aussie ordered the head trader at VQR to liquidate all the fund’s positions and transfer the money to him. Qin disregarded the head trader’s warning that the move would cause losses to VQR investors.
Hefty Charges
On February 4, 2021, Qin pled guilty to securities fraud. Commenting on the charges, the US Attorney, Audrey Strauss, stated that, “Qin’s brazen and wide-ranging scheme left his beleaguered investors in the lurch for over $54 million, and he has now been handed the appropriately lengthy sentence of over seven years in federal prison.”
The charges levied against Qin have also required the Aussie to repay the $54 million he solicited from investors. Qin was also sentenced to three years of supervision after release.
Cryptocurrency scams have been on the rise this year, a move that has prompted regulators globally to express concerns. In May, the Federal Trade Commission issued a report stating that over $80 million has been lost to crypto-related scams since October 2020.
The chair of the US Securities and Exchange Commission, Gary Gensler, highlighted the need for clear regulatory frameworks that will protect investors. Gensler stated that investors usually fall for these scams because they think there is lower risk involved with investment products backed by ‘cutting-edge’ technology. New investors are also lured to these schemes out of the fear of missing out (FOMO).
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