US Court Jails $90M Crypto Fund Owner for over 7 Years

He touted his investment strategies to be risk-proof but ended up embezzling funds.

The Southern District of New York passed its judgment on Stefan He Qin, who ran a $90 million crypto hedge fund, sentencing him for 90 months in jail for defrauding his investors. Additionally, he was ordered to forfeit almost $54.8 million.

Announced on Wednesday, the judgment came after Qin pled guilty to one count of securities fraud earlier in February after he was charged by the US Securities and Exchange Commission (SEC) at the end of last year.

Arbitrage Strategy

Qin owned and operated two cryptocurrency hedge funds, Virgil Sigma and VQR, between 2017 and 2020. He initially approached investors saying that he is using the arbitrage strategy to earn profits from the crypto markets, which are said to be risk-proof.

Virgil Sigma, which was the first hedge fund opened by Qin, claimed to have made profits every month since August 2016, with the exception of March 2017. These claims helped him to raise as much as $90 million as assets under management for the fund.

VQR was founded in February 2020 and, unlike the other fund, was following an active trading strategy on the crypto market, making profits from market fluctuations. Further, this fund gathered around $24 million from investors.

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Despite the exaggerated claims, Qin started to defraud Virgil Sigma investors in 2017, according to the authorities. He used a significant portion of the investors’ money to meet personal expenses and used the proceeds to directly invest in cryptocurrency markets like initial coin offerings (ICOs).

Further in December 2020, he closed all market positions with VQR funds at a loss to purportedly use the funds for the redemption of Virgil Sigma investors.

“Qin’s investors soon discovered that his strategies weren’t much more than a disguised means for him to embezzle and make unauthorized investments with client funds. When faced with redemption requests he couldn’t fulfil, Qin doubled down on his scheme by attempting to plunder funds from VQR to satisfy his victim investors’ demands,” said US Attorney Audrey Strauss.

“Qin’s brazen and wide-ranging scheme left his beleaguered investors in the lurch for over $54 million, and he has now been handed the appropriate lengthy sentence of over seven years in federal prison.”

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