US authorities have frozen digital assets of a New York-based fund, alleging it scammed investors out of more than $92 million.
Who’s involved? The SEC claims Virgil Capital LLC and its affiliated companies operated as a front for a long-running scam carried out by 23-year-old Australian founder Stefan Qin.
The case alleges that since 2018 Qin has been cheating investors in the firm’s flagship crypto vehicle, forging records and lying about the strategy and financial health of the fund.
Amazingly, Qin himself gave an interview to the Wall Street Journal in 2018, in which he expressed frustration at illegal activity in the crypto “Wild West,” and even outlined steps taken at Virgil to combat them.
Arbitrage bot. Virgil Capital investors were told their money would go to a new arbitrage fund Sigma, with trades decided by a proprietary algorithm built to exploit price differences across exchanges.
When it came time to cash out, Virgil promised interests would be transferred to Qin’s VQR Multistrategy Fund LP.
However, it looks like the part-time New York resident used much of this money for personal use or to prop up a number of risky and undisclosed investments.
A fugazi. According to the SEC, Qin failed to redeem more than $3.5 million in investments, and attempted to withdraw $1.7 million to repay cash borrowed from Chinese loan sharks and funnelled into Sigma.
All the while, Qin allegedly peddled a fake spreadsheet that supposedly tracked Sigma’s investments across 39 crypto exchanges.
The document claimed the fund’s average monthly holdings last year hit $2 million across Coinbase, Kraken, and Gemini — but the SEC says they were totally empty.
Crypto janitors. Aside from the usual civil fines and disgorgement, the SEC is seeking a permanent ban on Qin’s operating, selling, and marketing of securities in the future.
The move comes as part of a flurry of legal actions in the past few months, most notably its case against Ripple Labs for selling unregistered securities — a bombshell that tanked its XRP cryptocurrency by 50%.
As for Qin, his lawyers issued a statement making it clear their client is prepared to cooperate with authorities and is “committed to ensuring that no investors are harmed.”