Bloomberg
A crypto child had an apartment costing $ 23,000 a month. Then came the FBI
(Bloomberg) – Stefan Qin was only 19 when he claimed to have the secret to cryptocurrency trading. Fascinated by youthful confidence, Qin, a self-proclaimed math prodigy from Australia, quit his studies to set up a hedge fund in New York in 2016, calling Virgil Capital. He told potential clients that he had developed an algorithm called Tenjin to track cryptocurrency exchanges around the world to grab price swings. Just over a year after it began, he bragged that the fund had returned 500%, a claim that netted a flurry of new money from investors. He was so overjoyed that in September 2019, Qin signed a lease for $ 23,000 a year. -month condo at 50 West, a 64-story luxury condo building in the Financial District with expansive views of Lower Manhattan, as well as a pool, sauna, steam room, hot tub, and golf simulator. In reality, federal prosecutors said the operation was a lie, essentially a Ponzi scheme that stole about $ 90 million from more than 100 investors to help pay for Qin’s lavish lifestyle and personal investments in risky bets like initial coin offers. At one point, when the client was asked for their money, he alternately blamed “poor cash flow management” and “loan sharks in China” for his troubles. Last week, Qin, now 24 and expressing regret, pleaded guilty to a single count of securities fraud in Manhattan federal court. “I knew what I was doing was wrong and illegal,” he told US District Judge Valerie E. Caproni, who could sentence him to more than 15 years in prison. “I deeply regret my actions and will spend the rest of my life paying for what I did. I am deeply sorry for the damage my selfish behavior has done to my investors who trusted in me, my employees and my family. Avid Investors The case reflects similar cryptocurrency fraud, such as that of BitConnect, promising people double and triple returns and costing investors billions. Such Ponzi schemes show how investors eager to make money in a hot market can easily be led astray by promises of big returns. Canadian exchange QuadrigaCX collapsed in 2019 due to fraud, causing at least $ 125 million in losses for 76,000 investors. As regulatory oversight of the cryptocurrency industry tightens, the industry is riddled with inexperienced participants. Some of the approximately 800 crypto funds worldwide are managed by people with no knowledge of Wall Street or finance, including some college students and recent graduates who launched funds a few years ago. Qin’s path also started in college. He was a math expert who planned to become a physicist, he told a website, DigFin, in a profile published in December, just a week before regulators approached him. He described himself on his LinkedIn page as a “quantum with a deep interest in and understanding of blockchain technology.” In 2016, he won acceptance into a program for promising 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 primarily online college located in San Francisco, from August 2016 to December 2017, the school confirmed. Crypto bug He got the crypto bug after an internship at a company in China, he told DigFin. His job was to build a platform between two locations, one in China and the other in the US, to enable the company to arbitrate cryptocurrencies. Believed to have found a company, Qin moved to New York to found Virgil Capital. His strategy, he told investors, would be to take advantage of cryptocurrencies’ propensity to trade at different prices on different exchanges. It is said to be “market neutral,” meaning that the company’s funds are not exposed to price movements. And unlike other hedge funds, he told DigFin, Virgil wouldn’t charge a management fee, but would only take fees based on the company’s performance. “We never try to make money easy,” said Qin. His story got Virgil off to a fast start, claiming a return of 500% in 2017, bringing in more investors eager to participate. A marketing brochure boasted 10% monthly returns – or 2,811% over a three-year period ending August 2019, legal documents show. His net worth received an extra shock after the Wall Street Journal profiled him in a February 2018 story detailing his skill in cryptocurrency arbitration. Virgil “experienced substantial growth as new investors flocked to the fund,” prosecutors said. Missing assets The first cracks appeared last summer. Some investors became “increasingly upset” about missing assets and incomplete transfers, former head of investor relations Melissa Fox Murphy said in a court statement. (She left the company in December.) Complaints grew. “It is now MIDDLE DECEMBER and MY MILLION DOLLAR IS NOWHERE TO BE SEEN,” wrote an investor, whose name had been obscured in court documents. “It’s a shame how you treat one of your first and biggest investors.” Around the same time, nine investors with $ 3.5 million in funds requested redemption of the company’s flagship Virgil Sigma Fund LP, prosecutors said. But there was no money to transfer. Qin had stripped the Sigma fund of its assets. The fund’s balances were made up. Rather than trading on 39 exchanges around the world, as he has claimed, Qin spent investor money on personal expenses and to invest in other undisclosed high-risk investments, including initial coin offers, prosecutors said. Delay. He instead convinced investors to transfer their interests to his VQR Multistrategy Fund, another cryptocurrency fund he started in February 2020 that used different trading strategies and still had assets. Loan Sharks He also attempted to withdraw $ 1.7 million from the VQR. fund, but that aroused suspicion in the head trader, Antonio Hallak. In a phone call Hallak recorded in December, Qin said he needed the money to repay “loan sharks in China” that he had borrowed to start his business, according to legal proceedings in a lawsuit filed by the Securities and Exchange Commission. He said the loan sharks “could do anything to collect the debt” and that he had a “liquidity problem” that prevented him from repaying it. “I just had such bad cash flow management to be honest,” Qin told Hallak. . ‘I don’t have any money now, dude. It’s so sad. When the merchant opposed the withdrawal, Qin tried to take the reins of VQR’s accounts. But now the SEC was involved. It got cryptocurrency exchanges to hold VQR’s remaining assets and, a week later, filed a lawsuit. Asset Recovery By the end, Qin had used up almost all of the money in the Sigma Fund. A court-appointed trustee who oversees the fund is looking for assets for investors, said Nicholas Biase, a Manhattan spokesperson for American attorney Audrey Strauss. About $ 24 million in assets in the VQR fund were frozen and should be available to distribute, he said. Stefan He Qin has drained nearly all of the assets from the $ 90 million cryptocurrency fund he owned, stole investors’ money, spent it on speculative personal investments, and lied to investors about the fund’s performance and what he did with them. had done money, “Strauss said in a statement. When he heard about the probe in South Korea, Qin agreed to fly back to the US, prosecutors said. He surrendered to authorities on Feb. 4, pleading the same day. guilty for Caproni and was released on $ 50,000 bail pending his conviction, scheduled for May 20. While the maximum legal sentence is up to 20 years in prison, as part of a plea deal, prosecutors agreed that he 151 to 188 months behind bars under federal criminal law guidelines and a fine of up to $ 350,000, a fate a far cry from the career his parents had before him den – a physicist, he had told DigFin. “They weren’t too happy when I told them I left college to do this crypto thing. Who knows, maybe someday I will get my degree. But what I really want to do is trade crypto. The case is US v Qin, 21-cr-75, US District Court, Southern District of New York (Manhattan) (Updates with prosecution comment and case caption) For more articles visit us at bloomberg.com Sign up now to stay ahead of the curve with the most trusted business news source. © 2021 Bloomberg LP