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One crypto kid had a condo for $ 23,000 a month. Then came the Feds

(Bloomberg) – Stefan Qin was only 19 years old when he claimed to have the secret of cryptocurrency trading. With youthful confidence, Qin, a self-styled prodigy from Australia, dropped out of college in 2016 to start a hedge fund in New York he called Virgil Capital. He told potential clients that he developed an algorithm called Tenjin to monitor cryptocurrency exchanges around the world and take advantage of price fluctuations. A little over a year after its inception, he bragged that the fund had returned 500%, a claim that generated a ton of new money from investors. It went so cashless that in September 2019 Qin signed a lease for a $ 23,000 -month apartment in 50 West, a 64-story luxury apartment building in the financial district with expansive views of Lower Manhattan, as well as a pool, sauna, steam room, hot tub and a golf simulator. In reality, federal prosecutors said the operation was a lie, essentially a Ponzi program that stole about $ 90 million from more than 100 investors to fund Qin’s lavish lifestyle and personal investments in high-risk bets like initial coin offers. At one point where customers were being asked for their money, he blamed “poor cash flow management” and “loan sharks in China” for his problems in various ways. Last week, Qin, 24, who expressed his repentance, pleaded guilty in federal court in Manhattan. “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 atoning for what I have done. I am deeply sorry for the damage my selfish behavior has caused to my investors, who have trusted me, my co-workers and my family. Avid Investors The case mirrors similar cryptocurrency fraud cases to BitConnect’s, promising double-digit and triple-digit returns for people and billions for investors. Such Ponzi programs show how investors looking to make money in a hot market can easily be misled by promises of high returns. Canadian stock exchange QuadrigaCX collapsed in 2019 as a result of fraud, causing 76,000 investors to lose at least $ 125 million. As oversight of the cryptocurrency industry intensifies, the sector is littered with inexperienced participants. Some of the 800 or so crypto funds worldwide are managed by people with no knowledge of Wall Street or finance, including some college students and graduates who launched funds a few years ago. Qin’s journey also began in college. He’d been a mathematician planning on becoming a physicist, he told a website, DigFin, in a profile released in December, just a week before regulators approached him. He described himself on his LinkedIn page as “a quantum with a deep interest and understanding of blockchain technology”. In 2016, he was inducted into a program for high potential entrepreneurs at the University of New South Wales in Sydney with a proposal to use blockchain technology to accelerate foreign exchange transactions. From August 2016 to December 2017, he also attended Minerva Schools, a largely online college in San Francisco, confirmed the school. Crypto BugHe got the Crypto Bug after an internship at a company in China, he told DigFin. His job had been to build a platform between two venues, one in China and one in the US, so that the company could broker cryptocurrencies. Convinced that he had closed a deal, Qin moved to New York to start Virgil Capital. His strategy, he told investors, would be to take advantage of the tendency of cryptocurrencies to trade on different exchanges at different prices. It would be “market neutral,” which means that the company’s funds would not be exposed to price movements. And unlike other hedge funds, he told DigFin, Virgil would not charge management fees and would only charge fees based on the company’s performance. “We never try to make easy money,” said Qin. By his testimony, Virgil got off to a quick start and achieved a 500% return in 2017, which attracted more investors to get involved. A marketing brochure with a monthly return of 10% – or 2,811% over a three-year period ending in August 2019, according to legal documents. His fortune got an additional jolt after the Wall Street Journal profiled him in a February 2018 story that announced his ability to arbitrate cryptocurrency. Virgil “saw significant growth as new investors poured into the fund,” prosecutors said. The first cracks appeared last summer. Former investor relations director Melissa Fox Murphy said in a court statement that some investors were “increasingly upset” about missing assets and incomplete transfers. (She left the company in December.) The complaints grew. “It is now MIDDLE OF DECEMBER and my MILLION DOLLARS ARE NOWHERE TO SEE,” wrote an investor whose name was obscured in court documents. “It’s a shame the way you treat one of your earliest and greatest investors.” At around the same time, nine investors with a fund of $ 3.5 million called for redemptions from the company’s flagship Virgil Sigma Fund LP, according to prosecutors. But there was no money to transfer. Qin had freed the Sigma Fund of its fortune. The fund’s balances were fabricated. Instead of trading on 39 exchanges around the world, Qin allegedly spent money on personal expenses and invested in other undisclosed high-risk assets, including initial coin offerings, prosecutors said. So Qin tried to bring it to a standstill. Instead, he convinced investors to transfer their interests to his VQR Multistrategy Fund, another cryptocurrency fund he launched in February 2020 that used a variety of trading strategies – and that still had assets. Loan Sharks. He also tried to pull $ 1.7 million out of the VQR fund, but that aroused suspicion from chief 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 borrowed from to start his business. This is evident from court files filed in a lawsuit with 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 was preventing him from paying it back. “I just had such bad cash flow management to be honest,” Qin told Hallak. “I don’t have any money right now, dude. It is so sad. “When the trader resisted the withdrawal, Qin tried to take over the running of the VQR accounts. The SEC was now involved. There were cryptocurrency exchanges to get a grip on VQR’s remaining assets, and a week later it filed a lawsuit. Restoring Wealth By the end, Qin had used up virtually all of the Sigma Fund’s money. A court-appointed recipient overseeing the fund is trying to reclaim assets for investors, said Nicholas Biase, a spokesman for US attorney Audrey Strauss in Manhattan. The VQR fund’s approximately $ 24 million assets have been frozen and should be available for diversification, he said. “Stefan He Qin withdrew almost all of the fortune of the $ 90 million cryptocurrency fund he owned, stole investor money, spent it on indulgences, and spent speculative personal investments and lies about the fund’s performance and what he was using made her money, ”Strauss said in a statement. Upon learning of the investigation in South Korea, Qin agreed to return to the United States, prosecutors said. He surrendered to authorities on February 4, pleaded guilty to Caproni the same day, and was released pending his conviction on May 20 for a $ 50,000 bond. The maximum sentence envisages a 20-year prison term as part of a plea Prosecution agreed that under federal condemnation guidelines and a fine of up to $ 350,000, he should be behind bars for 151 to 188 months. That fate is a far cry from the career his parents planned for him – a physicist, he had told DigFin. “They weren’t very happy when I told them I left college to do this crypto thing. Who knows, maybe one day I’ll graduate. But what I really want to do is crypto trading. “The case is US v Qin, 21-cr-75, US District Court, Southern Borough of New York (Manhattan) (updates with attorney’s comment and case signature). More Articles Visit us this way at bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP

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