Bloomberg
A crypto child owned a $ 23,000 a month apartment. Then came the Feds
(Bloomberg) – Stefan Qin was just 19 when he claimed to have the secret of cryptocurrency trading. Qin, a self-proclaimed math prodigy from Australia, studied with youthful confidence to start a hedge fund in New. York he called Virgil Capital. He told potential clients he had developed an algorithm called Tenjin to monitor cryptocurrency exchanges around the world to take advantage of price fluctuations. A little over a year after it started, he boasted that the fund had yielded 500%, a claim that yielded a spate of new money from investors. He became so cash that in September 2019, Qin signed a lease for $ 23,000 per a. month apartment in 50 West, a luxury 64-story apartment building in the financial district with expansive views of lower Manhattan, as well as a pool, sauna, steam room, hot tub and golf simulator. According to federal prosecutors, the operation was a lie, essentially a Ponzi scheme that stole about $ 90 million from more than 100 investors to help Qin’s lavish lifestyle and personal investments in such high-risk commitments as the first to pay coin supply. At one point, he blamed poor cash flow management ‘and’ loan sharks in China ‘for various problems for customers’ demands for their money. Last week, Qin, now 24 and expressing remorse, pleaded guilty in federal court in Manhattan to a single charge of security fraud. “I knew what I was doing was wrong and illegal,” he told U.S. District Judge Valerie E. Caproni. which could sentence him to more than 15 years in prison. ‘I’m very sorry for my actions and will atone for the rest of my life for what I did. I am very sorry for the damage my selfish behavior has done to my investors who have trusted me, my employees and my family. ‘Greedy investors The case reflects similar cryptocurrency fraud, such as that of BitConnect, and promises people to deliver double- and triple-digit returns and cost investors billions. Such a Ponzi scheme shows how investors who are eager to make money in a hot market can easily stray by promising high returns. The Canadian stock exchange QuadrigaCX collapsed in 2019 due to fraud, causing 76,000 investors to lose at least $ 125 million. As supervision intensifies at the regulatory level of the cryptocurrency industry, the sector is littered with inexperienced participants. A number of the approximately 800 crypto-funds worldwide are managed by people who have no knowledge of Wall Street or finance, including some college students and recent graduates who launched funds a few years ago. He was a mathematician planning to become a physicist, he told a website, DigFin, in a profile published in December, just a week before regulators shut him down. He described himself on his LinkedIn page as a “quantity with a deep interest and understanding in blockchain technology.” In 2016, he was accepted into a program for high-potential entrepreneurs at the University of New South Wales in Sydney with a proposal to use blockchain technology to accelerate currency transactions. He also attended Minerva Schools, a mostly online college in San Francisco, from August 2016 to December 2017. Crypto Bug He got the crypto error after an internship at a firm in China, he told DigFin. Its task was to build a platform between two venues, one in China and the other in the US, to enable the company to arbitrate cryptocurrencies. Considering he had a business, Qin moved to New York to establish Virgil Capital. His strategy, he told investors, would be to take advantage of the tendency of cryptocurrencies to trade at different prices on different exchanges. He would be ‘market neutral’, meaning that the company’s funds would not be exposed to price movements. And unlike other hedge funds, he told DigFin, Virgil will not charge management fees, but only fees based on the performance of the business. “We never try to make money easily,” Qin said. Virgil got off to a fast start, claiming 500% returns in 2017, which attracted more investors. A marketing brochure boasts monthly returns of 10% – or 2,811% over a three-year period ending in August 2019, according to the legal returns. His assets received an extra shock after the Wall Street Journal profiled him in a February 2018 story showing his skill in arbitrating cryptocurrency. Virgil “experienced significant growth as new investors flocked to the fund,” prosecutors said. Missing assets The first cracks appeared last summer. Some investors are becoming “increasingly upset” about missing assets and incomplete transfers, former investor relations chief Melissa Fox Murphy said in a court statement. (She left the firm in December.) The complaints increased: “It’s now MID – DECEMBER and my MILLION DOLLARS ARE NOWHERE TO BE SEEN ANYWHERE,” wrote one investor whose name was blackened in the court documents. “It’s a shame for the way you treat one of your earliest and biggest investors.” Around the same time, nine investors with $ 3.5 million in funds sought redemption from the firm’s flagship Virgil Sigma Fund MP, according to prosecutors. But there was no money to transfer. Qin drained the Sigma fund of its assets. According to prosecutors, Qin spent investment money on personal expenses and traded in other unknown high-risk investments, including the initial coin offering. to stall. He convinced investors to transfer their interests to his VQR Multistrategy Fund, another cryptocurrency fund he launched in February 2020, which uses a variety of trading strategies – and still has assets. ‘Loan Sharks’ He also wanted to withdraw $ 1.7 million from the VQR. fund, but this aroused suspicion on the part of the chief trader, Antonio Hallak. In a call recorded by Hallak in December, Qin said he needed the money to repay “loan sharks in China” for which he had borrowed to start his business, according to a lawsuit filed by the Securities and Exchange Commission was filed. He said the loan sharks ‘can do anything to collect the debt’ and that he has a ‘liquidity issue’ that prevents him from repaying it. “I just had such poor cash flow management to be honest with you,” Qin told Hallak. . ‘I do not have money at the moment dude. It’s so sad. ‘When the trader withdrew from the withdrawal, Qin tried to take over the reins of VQR’s accounts. But now the SEC was involved. It received an exchange of cryptocurrencies to seize the remaining assets of VQR and filed a case a week later. At the end of the time, Qin drained virtually all the money that was in the Sigma fund. A court-appointed recipient who oversees the fund wants to recover assets for investors, said Nicholas Biase, a spokeswoman for U.S. Attorney Audrey Strauss in Manhattan. About $ 24 million in assets in the VQR fund were frozen and would be available to disperse, he said. “Stefan He Qin has depleted almost all the assets from the $ 90 million cryptocurrency fund he owns and stolen the investor money, spent on indulgences and speculative personal investments and lies to investors about the fund’s performance and what he has to do with them. money, “Strauss said in a statement. In South Korea, when Qin learned of the investigation, Qin agreed to fly back to the U.S., prosecutors said. He surrendered to authorities on February 4. , the same day before Caproni pleaded guilty and was released on a $ 50,000 mortgage pending his sentencing, scheduled for May 20. While the maximum statutory sentence requires 20 years in prison, as part of a plea prosecutors agreed that he He had to face up to 151 to 188 months behind bars under federal sentencing and a fine of up to $ 350,000. The fate is far from the career his parents envisioned for him – a physicist, he told DigFin. ‘They were not too happy when I told them I had stopped doing the crypto thing. Who knows, maybe one day I will complete my degree. But what I really want to do is trade crypto. ‘The case is US v Qin, 21-cr-75, the U.S. District Court, the Southern District of New York (Manhattan) (updates with comments from the prosecutor and the caption of the case) For more articles, please visit bloomberg.com. Sign up now to stay ahead of the most trusted business news source. © 2021 Bloomberg LP