A lawsuit was filed by the US Securities and Exchange Commission (SEC) against the founder of a crypto hedge fund in Manhattan federal court. According to the court filing on Tuesday by the regulators, the 23-year-old Australian, Stefan Qin, had managed to defraud investors through his crypto arbitrage funds valued at $92.4 million. Qin is the founder of Virgil Capital, based in New York, along with four other entities. The SEC said that the founder had not been able to redeem $3.5 million on behalf of its investors, fabricated records and had tried to pay off Chinese loan sharks by using investor funds of about $1.7 million.
It was reported by Reuters that the SEC had requested US Judge Lorna Schofield to give an emergency order that would freeze around $25 million held by another fund controlled by Qin in the form of digital assets. As per the information provided by the SEC, there are two cryptocurrency hedge funds that are under Qin’s control; the VQR Multistrategy Fund and the Virgil Sigma Fund. The SEC said that the founder claims to use a market-neutral arbitrage approach in the crypto market for trading via the Sigma Fund and uses an algorithmic trading system that’s constantly scanning for any price differences in the crypto space.
In fact, Qin had gone so far as claiming that his trading algorithm could actually provide better returns than investing in Bitcoin. As per the SEC, the documentation of the Sigma Fund that has been provided to investors claimed that they hold digital assets worth millions of dollars at 39 trading platforms, which include three of the biggest platforms based in the US. It was disclosed that the Sigma Fund did not have any such assets in reality on any of the US-based platforms and all their account balances were simply fabricated.
Moreover, it was alleged by the SEC that investors who had wanted to redeem their investments valued at $3.5 million in the middle of the year we’re told by the crypto hedge fund founder that their money would be transferred to the VQR Multistrategy Fund. However, nothing like that had happened. Antonio Hallak, a VQR head trader, revealed that Qin had asked him in December to help in withdrawing $1.7 million from the hedge fund. The SEC said that the founder had claimed to have a liquidity issue, when in reality he had to pay off Chinese loan sharks.
Qin had been informed by Hallak that he couldn’t use any of the investors’ capital that was part of the VQR fund, prompting the founder to threaten to fire everyone, if needed, for making the full withdrawal. The SEC said that bank records had also shown receipt of around $2.5 million by the Sigma Fund since June 2020. Qin had first transferred $1.3 million to a foreign bank account in the fund’s name and then immediately moved it to a US bank account in his name. The SEC has requested the court to permanently restrain the founder and his companies.