Bitcoin is one of the most widely recognized, and owned cryptocurrencies with a market capitalization of over a trillion dollars in March 2021.1 Cryptocurrencies are digital assets designed to work as a medium of exchange. Unlike paper money, cryptocurrency doesn’t exist in physical form. The price of just one Bitcoin hit a high of $61.7K in U.S. dollars on March 14, 2021.2
This unregulated and little understood currency has attracted investors who see more profit in cryptocurrencies than traditional investment options.
With the popularity of cryptocurrency has also come an upswing in scams and fraud. According to Interpol, Bitcoin has been associated with money laundering, extortion, investment scams, ransomware and malware as well as dark web websites.3The story of Stefan He Qin illustrates how investors can become easy prey for scammers promising high returns on cryptocurrency investments.
Qin is an Australian native and a math prodigy who dropped out of college to start Virgil Capital, a New York-based managing entity for Virgil Sigma Fund, which he founded in 2016 when he was just 19 years old. The secret to the cryptocurrency investment fund’s success, and a second fund, VQR which he later created, would be an algorithm, called Tejin, which Qin said he had developed to monitor cryptocurrency exchanges around the world and to seize on price fluctuations. The strategy, called arbitrage, involves buying a commodity, like Bitcoin, where it’s at a low price and selling it where it goes for a higher price. Since it trades on more than 100 exchanges around the world, cryptocurrency appeared to be an ideal product for employing the arbitrage stragegy. A year after founding Virgin Capital, Qin stated that the fund had returned 500 percent, which was an enticement which garnered additional investors.4 Qin appeared so successful that in 2018 he was profiled by The Wall Street Journal and was interviewed on CNBC’s FastMoney. The Wall Street Journal stated that Qin was managing $23.5 million at the time.5
It turns out that Qin’s apparent success was actually nothing more than a Ponzi-scheme. On February 4, 2021, Qin pled guilty in Manhattan federal court to one count of securities fraud brought by the U.S. Securities and Exchange Commission (SEC) for charges that over the years he stole investor money from Virgil Sigma Fund, LP, and tried to pay it back in December 2020 with money from the VQR Multistrategy Fund LP.6 The SEC claimed that Qin never invested the Virgil Sigma Fund’s assets in any cryptocurrency arbitrage trading strategy, but rather he embezzled investor’s money to pay for personal expenses such as a penthouse apartment in New York with a $23K per month price tag. Qin also used the investors’ money to make personal investments unrelated to cryptocurrency, such as real estate investments, and other investments in crypto-assets that were not in line with the fund’s stated arbitrage strategy. In the end, Qin had squandered all the investor capital in the Virgil Sigma Fund and tried to use the VQR Fund to pay investors’ redemption requests, telling colleagues at VQR that he urgently needed $1.7 million from the fund to pay back loan sharks in China. Qin was unsuccessful in his attempts to withdraw funds from VQR.
Manhattan U.S. Attorney Audrey Strauss said in a statement that “Stefan He Qin drained almost all of the assets from the $90 million cryptocurrency fund he owned, stealing investors’ money, spending it on indulgences and speculative personal investments, and lying to investors about the performance of the fund and what he had done with their money.”7 His sentencing is scheduled for May 20. Qin entered a plea deal to get 151 to 188 months in jail and a fine of up to $350,000.
If you have questions about cryptocurrency, securities fraud, investment losses or the management of your investment accounts, contact our Michigan Securities Law Firm today. With over 20 years experience in securities litigation, you are in good hands. We have been helping investors recover losses from fraudulent financial advisors, brokers and investments. You have rights! Call today and speak with an experienced securities attorney.
1 All Cryptocurrencies Ranked
2 Bitcoin price dip pushes its market cap below $1 trillion,
3 Moontec ’18 Inspired: Cryptocurrency Related Crimes and Investigation Challenges
4,7 Scammer Crypto Kid, who Defrauded over 100 Inventors with His Ponzi Scheme, Lived a Luxurious Life in a $23K per Month Condo, by Chris Dolmetsch, Bloomberg, 2/19/2021
5 Bitcoin’s Crashing? That Won’t Stop Arbitrage Traders From Raking in Millions by Alexander Osipovich and Eun-Young Jeong, 2/3/2018
6 Founder of $90 Million Cryptocurrency Hedge Fund Charged with Securities Fraud and Pleads Guilty in Federal Court, 2/4/2021