The Securities and Exchange Commission obtained an order imposing an asset freeze and other emergency relief against cryptocurrency fund manager Virgil Capital and its affiliated companies. The action was taken due to alleged securities fraud related to its flagship cryptocurrency trading fund, Virgil Sigma Fund, and its VQR Multistrategy Fund, the SEC said Monday.
In a complaint filed Dec. 22 in the U.S. District Court for the Southern District of New York, the SEC alleged the fraud was directed by Stefan Qin, an Australian citizen and part-time resident of New York, who owns and controls Virgil Capital and its affiliated companies.
Qin, 23, was named in the suit as a defendant, along with Virgil Capital and four affiliated companies. Virgil Capital did not immediately respond to a request for comment Tuesday.
According to a CoinDesk report citing the SEC, he allegedly failed to redeem $3.5 million in investments and attempted to withdraw $1.7 million in investor funds “to pay off Chinese loan sharks.”
“Qin has perpetrated a scheme to lure investors into the two Funds, which are marketed as using algorithmic trading strategies involving cryptocurrencies, using false promises and assurances,” the complaint alleges.
Qin and the Virgil entities have been defrauding investors in the Sigma Fund since at least 2018 by making material misrepresentations about the fund’s strategy, assets and financial condition, according to the complaint.
The complaint claimed the defendants misled investors to believe their money was being used only for cryptocurrency trading based on a proprietary algorithm, but Qin and the entities used investment proceeds for personal purposes or for other undisclosed high-risk investments.
Transfer, Redemption Problems
Since at least July 2020, Qin and Virgil Capital told investors who requested redemptions from the Sigma Fund that their interests would be transferred instead to the VQR Multistrategy Fund, another fund under the ultimate control of Qin but with separate management and operations, according to the complaint.
The complaint alleged no funds were transferred and the redemption requests remained outstanding. The SEC’s complaint further alleged Qin was actively seeking to misappropriate assets from the VQR Fund and to raise new investments in the Sigma Fund.
The complaint seeks permanent injunctions, including conduct-based injunctions, disgorgement with prejudgment interest and civil penalties.