Stefan Qin was just 19 years old when he claimed to have mastered the secrets of cryptocurrency trading.
Qin, a self-proclaimed math prodigy from Australia, was young and confident and dropped out of college in 2016 to start a hedge fund called Virgil Capital in New York, according to a Bloomberg report. He told potential clients that he had developed an algorithm called Tenjin to monitor cryptocurrency exchanges around the world to catch price fluctuations.
He is described in local Australian media as being of Chinese descent. From his linkedin, he claims to be proficient in Chinese and his early internship experience was mostly with Chinese companies.
More than a year after the fund’s inception, he boasted a 500% return on the fund, a claim that sparked a frenzy of new money from investors.
Cash became so plentiful that Chin rented a $23,000-a-month apartment in September 2019 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, everything Qin said was a lie, federal prosecutors said, and it was essentially a Ponzi scheme that stole about $90 million from more than 100 investors, all to pay for Qin’s lavish lifestyle and personal investments in high-risk bets such as initial token offerings.
He has blamed his troubles on, “poor cash flow management” and “Chinese loan sharks” when confronted with his clients’ financial needs. Last week, Chin, now 24, pleaded guilty in Manhattan federal court to a securities fraud charge and pleaded guilty.
“I know what I did was wrong and illegal,” he told a U.S. District Judge. Caproni could be sentenced to more than 15 years in prison. “I deeply regret my actions and will spend the rest of my Life making amends. My selfish actions have caused harm to investors who trusted me, my employees and my Family, and for that I am deeply sorry.”
The case echoes similar cryptocurrency scams like BitConnect, which promised double- and triple-digit returns to people while costing investors billions of dollars. Ponzi schemes like this show that investors eager to cash in on a hot market can easily be led astray by promises of huge returns.
As a result of the fraud, Canadian exchange QuadrigaCX collapsed in 2019, causing losses of at least $125 million to 76,000 investors.
Despite tightening regulations in the cryptocurrency industry, the sector is rife with inexperienced players. There are about 800 crypto funds worldwide, many of which are run by people who know nothing about Wall Street or finance, including some college students and recent graduates who founded funds a few years ago.
Chin’s mythical story also began in college. He told DigFin.com in a profile published last December that he had been a math genius who planned to become a physicist, just a week before regulators investigated him. On his LinkedIn page, he describes himself as a “quantitative analyst with a deep interest and understanding of blockchain technology.
In 2016, he was accepted into a program for high-potential entrepreneurs at the University of New South Wales in Sydney, which proposed using blockchain technology to accelerate foreign exchange trading. He also enrolled in the Minerva School of Business in San Francisco, a predominantly online learning institute, from August 2016 to December 2017, according to Minerva Business School confirmation.
He told DigFin that he discovered a cryptocurrency trading vulnerability after interning at a Chinese company. He was tasked with creating a platform between China and the U.S. that would allow the company to arbitrage on cryptocurrencies.
Convinced that he had stumbled upon a promising business, Qin Gang moved to New York to start Virgil Capital. He told investors that his strategy would be to take advantage of the trend of trading cryptocurrencies at different prices on different exchanges. He will remain “market neutral,” meaning the company’s capital will not be affected by price fluctuations.
He told DigFin that unlike other hedge funds, Virgil does not charge a management fee, but only a fee based on the firm’s performance. Chin said, “We never try to make easy money.”
Virgil got off to a great start, earning a 500% return in 2017 and attracting more eager investors, according to his account. One of his marketing brochures claimed a 10 percent monthly return, or a 2,811 percent return for the three years ending August 2019, legal documents show.
His fund accelerated after the Wall Street Journal profiled him in a February 2018 article touting his skills in cryptocurrency arbitrage. Prosecutors said Virgil “saw the fund achieve significant growth as new investors poured in.”
The first trouble came last summer. Melissa Fox, the fund’s former head of investor relations, said she had a lot of trouble. Fox? Murphy said in a court statement that some investors were “increasingly unhappy” with the missing assets and incomplete transfers and began to complain.
“It’s mid-December and my millions of dollars are missing,” wrote one investor, whose name was not revealed in court documents. “The way you treated one of your earliest and largest investors is disgraceful.”
Around the same Time, prosecutors said, nine investors who had put up $3.5 million in capital demanded redemption from the company’s flagship fund, Virgil Sigma Fund LP. But there was no money. Chin had depleted the Sigma Fund’s assets, and the fund’s balance was falsified.
Instead of trading on 39 exchanges around the world, as he claimed, Qin used investors’ funds for personal expenses and invested in other undisclosed high-risk investments, including initial token offerings (ICOs), prosecutors said.
So Chin tried to stall. He worked to convince investors to transfer their interests to his VQR Multistrategy Fund, another cryptocurrency fund he created in February 2020 that uses multiple trading strategies and still owns assets.
He also tried to withdraw $1.7 million from the VQR Fund, but that raised suspicions from chief trader Antonio Hallak. According to a lawsuit filed with the U.S. Securities and Exchange Commission, Hallak recorded a phone call in December in which Qin said he needed the money to repay “Chinese loan sharks” from whom he had borrowed money to start his business.
Qin said the loan sharks “would probably do anything to collect the debt” and that his “liquidity problems” made it impossible for him to pay them back.
“To be honest with you, my cash flow management is terrible,” Chin told Halak. “I don’t have any money right now, man. It’s heartbreaking.”
When the trader denied Chin’s withdrawal request, Chin tried to take over VQR’s account. But the Securities and Exchange Commission had already stepped in and had the cryptocurrency exchange freeze VQR’s remaining assets, and a lawsuit was filed a week later.
In the end, Qin drained almost all of the Sigma fund’s $90 million. A spokesman for the acting Manhattan federal prosecutor said the court-appointed administrator overseeing the fund is seeking to recover assets for investors. About $24 million in assets in the VQR fund are frozen and should be returnable, he said.
After learning of the findings in South Korea, Qin Gang agreed to fly back to the United States, surrendered to authorities on Feb. 4, pleaded guilty before a judge and was released on $50,000 bail pending sentencing on May 20, prosecutors said. Although the maximum statutory penalty is 20 years in prison, the prosecution agreed in the plea agreement that he should receive 151 to 188 months in prison and a fine of up to $350,000, according to federal sentencing guidelines.
That fate was far from the career prospects his Parents envisioned for him – he told DigFin that he would become a physicist.
“When I told them I was leaving college to do this crypto thing, they weren’t too happy about it. Who knows, maybe one day I’ll finish my degree. But what I really want to do is trade cryptocurrencies. “
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