Audrey Strauss, U.S. Attorney for the Southern District of New York, and Peter C. Fitzhugh, special agent in charge of the New York Field Office of Homeland Security Investigations (“HSI”), announced that STEFAN HE QIN, the founder of the Virgil Sigma Fund MP (“Virgil Sigma”) and the VQR Multistrategy Fund MP (“VQR”), a few crypto-currency hedge funds in New York, New York, with more than $ 100 million in investments, have been charged with one number of security frauds and pleaded guilty in federal court in Manhattan today. For years, QIN stole investor money from Virgil Sigma and in December 2020, QIN tried to steal investor money from VQR to repay its investors in Virgil Sigma. QIN pleaded guilty before U.S. Judge Valerie Caproni today.
U.S. Attorney Audrey Strauss said: “Stefan He Qin stole almost all the assets from the $ 90 million cryptocurrency fund he owns, stole investor money, spent on indulgences and speculative personal investments and lied to investors about the performance of the fund and what he did with their money.When further acknowledging today, Qin tried to steal money from another fund he controlled to meet the redemption demands of the deceived investors in the former fund. The entire house of cards has been revealed, and Qin is now awaiting sentencing for his uncivilized theft. “
HSI special agent Peter C. Fitzhugh said: “Virgil Sigma and VQR, two multi-million dollar investment funds for cryptocurrencies, have revealed that they are bad funds for Qin to live his extravagant lifestyle. Qin has orchestrated this reprehensible criminal scheme for years by making misrepresentations and false promises that prompted investors to pour millions of dollars into fraudulent cryptocurrency businesses while stealing the hard-earned money from its investors. Furthermore, Qin has mastered the art of art control by presenting these businesses as profitable investment strategies, so that more victims have fallen into its tactics and defrauded them of almost $ 100 million. The HSI New York El Dorado Task Force, with our incredible law enforcement partnerships, is committed to fraudulently pursuing aggressively in all forms, no matter how extensive and profitable these schemes appear. In today’s technological world, there are more and more opportunities for fraudsters to exploit people, and with Qin pleading guilty to his fraudulent actions, HSI and our partners remind those who try to deceive the victims in any way, your fraud will be exposed and you will be brought before the court. ”
According to the information and statements made in the open court:
Background
STEFAN HE QIN is a 24-year-old Australian citizen. Between 2017 and 2020, QIN owned two investment funds in Cryptocurrency, Virgil Sigma and VQR, both of which were located in New York City, New York. Since its inception, Virgil Sigma has pretended to use a strategy to profit from arbitrage opportunities in the cryptocurrency market, specifically by using a trading algorithm to take advantage of price differences for a number of cryptocurrencies, including Bitcoin and others, in about 40 different global exchanges, including three exchanges in the United States. This strategy was presented by QIN to the investment public as ‘market neutral’, meaning that the fund was not exposed to any risk of the price of cryptocurrency moving up or down and therefore delivered a relatively safe and liquid investment. QIN exercised daily control over Virgil Sigma and was responsible for tracking the fund’s balances on various trading exchanges, designing the algorithms for trading arbitrage and compiling monthly investor statements. QIN also regularly participated in calls with Virgil Sigma investors and other forms of public communication, where he noted the growth and success of Virgil Sigma. Until recently, Virgil Sigma claimed to have managed more than $ 90 million among dozens of investors, including many in the United States. According to its public marketing materials, Virgil Sigma has been profitable in every month from August 2016 to date, with the exception of March 2017.
In or around February 2020, QIN established VQR. VQR used different trading strategies and was willing to make or lose money due to the fluctuations in the value of cryptocurrency and was not market neutral. QIN was the sole owner of VQR’s general partner, but was not involved in the day-to-day operations of VQR. Instead, VQR had its own trading staff, including a main trader (the “main trader”) and other professional investors. Until recently, VQR had at least about $ 24 million among investors.
Qin’s scheme to steal assets from Virgil Sigma
Since 2017, QIN has undertaken a scheme to steal assets from Virgil Sigma and defraud its investors. Instead of investing the assets of the fund in a cryptocurrency trading strategy as advertised, QIN embezzled Virgil Sigma’s investor capital and used the funds for purposes other than the alleged arbitrage trading strategy, including: (a) the use of a substantial portion of the investment capital stolen from Virgil Sigma to pay for personal expenses such as food, services and rent for a penthouse in New York City, New York; (b) used a significant portion of Virgil Sigma’s investor capital to make personal, often illiquid, investments in other entities that had nothing to do with cryptocurrencies (for example, in or around October 2018, QIN invested hundreds of thousands of dollars stolen from Virgil Sigma in a real estate investment); and (c) used a substantial portion of Virgil Sigma’s investment capital to invest in crypto-assets that had nothing to do with the fund’s declared arbitration strategy (or, for example, in or around 2018, QIN’s Virgil Sigma funds investing in certain initial currency. offers, a speculative form of investment in new issues of cryptocurrency). As a result of these and other fraudulent activities, QIN has distributed almost all of the investor capital in Virgil Sigma.
In the course of stealing Virgil Sigma’s assets, QIN regularly lied to the fund’s investors about the value, location and status of their investment capital. These lies include a variety of investor and public communications, including:
(a) QIN has prepared and distributed monthly statements to investors who pretend to record the value of their shares in Virgil Sigma. The amounts recorded in these statements do not reflect the results of cryptocurrency trading. Instead, the amounts were made up by QIN and did not disclose the distribution of assets by QIN.
(b) QIN has also from time to time prepared marketing materials for the investor public, including summary reports known as ‘tear-jerkers’ who fraudulently reported that Virgil Sigma was making remarkable profits, often with double-digit returns in one month, month after month. For example, in or around February and in or around April 2017, QIN falsely reported that Virgil Sigma earned 48.7% and 35.5% returns, respectively.
(c) On an annual basis, QIN prepared spreadsheets claiming to show Virgil Sigma’s balances on the approximately 40 exchanges where Virgil Sigma allegedly traded to draw up tax forms for the fund’s investors, also known as schedule K-1’s. However, as QIN was well aware, these spreadsheets and the resulting Schedule K-1s were fake and significantly overestimated the balances and trading activities of Virgil Sigma on the exchanges.
As a result of QIN’s lies about the activity and success of Virgil Sigma in this and other communications, QIN was able to gradually attract new capital to Virgil Sigma, thereby (a) ensuring that it could pay off investors’ redemption requests, and (b) preventing to project continued growth to the public. After profiling QIN and the alleged success of its fund in the Wall Street Journal in or around February 2018, Virgil Sigma experienced significant growth as new investors flocked to the fund.
Qin Attempts to Steal VQR Assets to Pay Investors to Virgil Sigma
In the summer of 2020, QIN experienced problems with the redemption requests from investors in Virgil Sigma. In order to gain access to funds to do the redemptions, and to hide its fraudulent activities described above, QIN attempted to steal investor capital from VQR to pay redemptions to Virgil Sigma investors. After several Virgil Sigma investors requested redemptions that Virgil Sigma could not pay, QIN convinced the investors that instead of redeeming the funds directly, the investors would agree to withdraw the funds from Virgil Sigma and to to transfer an investment in VQR. After months had passed and no funds had been transferred to VQR, QIN falsely told these investors that it had requested the transfer of funds from Virgil Sigma, but that the transfer had been delayed due to an intermediary. QIN has shown some of these investors bank transfer requests to reinforce the impression that QIN is trying to transfer the money from Virgil Sigma to VQR. However, Virgil Sigma’s bank could not make these bank transfers, as QIN distributed all of Virgil Sigma’s assets.
In the vicinity of December 2020, faced with additional redemption requests that he could not comply with, QIN demanded that the chief trader at VQR abolish all trading positions at VQR and transfer a portion of the funds to QIN so that QIN the money could use to pay off these redemptions to Virgil Sigma investors. QIN issued the question, although the main trader advised QIN to close the then current trading positions of VQR, rather than holding the positions in line with VQR’s directional trading strategy, this would lead to losses for VQR’s investors. In the course of these discussions, QIN threatened that if the principal trader did not speed up the process sufficiently, QIN as the sole owner of VQR’s general partner, would have to take control of all VQR’s accounts to gain access to the funds. On behalf of QIN, the Head Trader consequently closed the positions of VQR and transferred access to VQR’s trading accounts to QIN. QIN subsequently sought to take control of VQR’s assets to enable QIN to comply with certain Virgil Sigma redemption requests.
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QIN (24) pleaded guilty to one count of security fraud. This charge carries a maximum term of 20 years imprisonment. The maximum sentence in this case is prescribed by Congress and is provided for information only here, as the judge will determine the sentence of the defendant. Sentencing is scheduled for May 20, 2021.
Me. Strauss praised the work of Homeland Security Investigations. She thanked the Securities and Exchange Commission for its cooperation and assistance in this investigation.
This case is being handled by the Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Daniel Tracer is in charge of the prosecution.