The Securities and Alternate Fee introduced this week it imposed an asset freeze in opposition to Virgil Capital LLC regarding alleged securities fraud involving the Virgil Sigma Fund LP, its flagship cryptocurrency buying and selling fund.
The SEC’s criticism alleges that Stefan Qin, who owns and controls New York Metropolis-based Virgil Capital and its affiliated corporations, has defrauded buyers within the Sigma Fund since at the very least 2018 by making materials misrepresentations concerning the fund’s technique, property and monetary situation. The Sigma Fund is a restricted partnership pooled funding fund. In a Type ADV filed in March, the fund’s listed property have been $92.4 million.
In keeping with the SEC, the Sigma Fund’s providing supplies state that it employs a proprietary, algorithmic-based arbitrage technique to commerce cryptocurrencies or digital property on liquid platforms all over the world, primarily utilizing a market-neutral technique. Qin, who based the fund 4 years in the past when he was 19, claimed the fund makes use of greater than 40 digital asset buying and selling platforms all over the world, and has achieved optimistic returns in each month besides one.
Particularly, the SEC pointed to a Virgil Capital advertising brochure for the Sigma Fund that listed month-to-month efficiency figures from August 2016 by August 2019 displaying optimistic month-to-month returns for 36 of the 37 months since inception, together with one month-to-month return of 48.7%. It additionally confirmed a mean month-to-month return of 10% over that interval in comparison with 11% for Bitcoin, however Virgil Capital claimed that Bitcoin was extra risky and had 16 destructive month-to-month returns versus only one for the Sigma Fund. It additional said that Bitcoin’s cumulative return over the identical interval was about 1500% versus 2811% for the Sigma Fund.
In its criticism, the SEC states that Qin and his entities don’t keep monetary books and information for the Sigma Fund, and that Virgil Capital hasn’t obtained audited monetary statements for the Sigma Fund for at the very least two years. The criticism additionally mentioned Qin admitted to an worker at one in every of his entities that he “considerably departed from the Sigma Fund’s said funding technique prior to now” by investing fund property in preliminary coin choices and in “round” investments the place the Sigma Fund invested in a third-party fund and the third-party fund invested within the Sigma Fund.
The criticism alleges that Qin and the entities he controls misled buyers to imagine their cash was used solely for cryptocurrency buying and selling based mostly on a proprietary algorithm, whereas Qin and the entities used funding proceeds for private functions or for different undisclosed high-risk investments.
The SEC additionally states that since at the very least July 2020, Qin and Virgil Capital instructed buyers searching for redemptions from the Sigma Fund that their pursuits could be transferred to the VQR Multistrategy Fund LP, which is managed by Qin however has separate administration and operations. This fund is marketed as investing in cryptocurrencies and different digital property, with digital property valued at roughly $25 million.
The SEC’s criticism alleges that no funds have been transferred and the redemption requests stay excellent. It additional alleges that Qin is actively trying to misappropriate property from the VQR Fund and to boost new investments within the Sigma Fund.
Thus, the SEC mentioned, it was compelled to acquire an order imposing an asset freeze and different emergency reduction in opposition to Virgil Capital.
“This emergency motion is a crucial step to guard investor property and stop additional hurt,” Kristina Littman, chief of the SEC Enforcement Division’s Cyber Unit, mentioned in a press release. “Qin allegedly made false guarantees to lure buyers after which continued his deception to hide his misuse of investor funds.”
The regulator’s criticism, which was filed within the Southern District of New York final week, expenses Qin, Virgil Capital and 4 associated entities managed by Qin with violations of the antifraud provisions of the federal securities legal guidelines, and seeks everlasting injunctions, together with conduct-based injunctions, disgorgement with prejudgment curiosity and civil penalties.
Qin is a citizen and resident of Australia and a part-time resident of New York Metropolis. The SEC mentioned he’s at the moment believed to be in Seoul, South Korea.
Qin’s LinkedIn web page lists him as managing accomplice of Virgil Capital, and he describes himself as a quant with a deep curiosity and understanding in blockchain know-how. “I am utilizing this data to construct the subsequent technology of monetary companies,” he says on the location. Qin didn’t reply to an electronic mail request for a remark.