The U.S. Securities and Exchange Commission (SEC) has hit crypto fund Virgil Capital LLC, and its flagship cryptocurrency trading fund, Virgil Sigma Fund LP with alleged securities fraud. The securities regulator announced filing an emergency action and obtaining an asset freeze against the crypto fund in connection with the alleged securities violations.
The SEC’s complaint alleges that Stefan Qin, a 23-year old founder of Virgil Capital who controls the firm and its affiliated companies, directed the fraud.
According to his LinkedIn profile, Qin is a Managing Partner at Virgil Capital and the Chief Executive Officer of Virgil Quantitative Research.
SEC’s case against Qin and his entities
Per the press statement, the SEC alleges that Qin, an Australian citizen and part-time New York resident, and his entities defrauded investors in the Sigma Fund since at least 2018 by misrepresenting the fund’s financial well-being, strategy, and assets.
The complaint alleges that Qin and his entities duped investors into believing that their funds were being used solely for investing in cryptocurrency using a proprietary algorithm, yet the defendants used the investors’ capital for personal uses and other undisclosed high-risk investments.
Beginning in July, Qin and Virgil Capital prevented investors from redeeming their investments in Sigma Funds. Instead, the defendants told the investors that their requested redemptions in Sigma Fund had been moved to VQR Multistrategy Fund, a fund under the control of Qin but with separate management and operations.
Through misleading acts, Qin convinced a minimum of nine investors to transfer their investments worth $3.5 million from the Sigma Fund into the VQR Fund.
It is alleged that Qin, who founded the Virgil Capital and Sigma Fund at the age of 19, sought the help of his associates who manage VQR Fund to withdraw $1.7 million as he needed the money to pay back loans sharks he fears in China.
It is further alleged that Qin is trying to misappropriate funds from the VQR Fund and raise new capital for the Sigma Fund.
“This emergency action is an important step to protect investor assets and prevent further harm. Qin allegedly made false promises to lure investors and then continued his deception to his misuse of investor funds,” explained Kristina Littman, the Chief of the SEC Enforcement Division’s Cyber Unit.
The complaint was filed in New York on Dec. 22, the same day that the SEC announced filing a $1.3 billion lawsuit against Ripple.