SEC Freezes Crypto Hedge Fund Assets

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SEC Freezes Crypto Hedge Fund Assets

The Securities and Exchange Commission (SEC) has charged and frozen the assets of Virgil Capital, a crypto hedge fund located in New York.

The government charged the fund’s creator, 23-year-old Stefan Qin, with engaging in “a fraudulent course of conduct, utilizing materially false and misleading claims to investors and others” and causing injury to two crypto funds sold by his organization, the Sigma fund and the VQR fund. “This immediate action is critical to protecting investor assets and preventing future damage,” said Kristina Littman, head of the SEC Enforcement Division’s Cyber Unit.

Key Takeaways

  • The Securities and Exchange Commission has accused a crypto hedge fund with securities fraud and frozen its assets.
  • Virgil Capital was a well-known hedge firm that attracted investors and capital after the 2017 crypto bull run.

According to the lawsuit, Qin committed substantial misrepresentations to investors about the fund. He claimed, for example, that the Sigma fund had invested millions of dollars across 39 trading platforms, including those in the United States, in order to capitalize on price arbitrage possibilities between exchanges operating in various countries.

The SEC, on the other hand, contends that this was not the case. “In actuality, the Sigma Fund had no assets at any of those US-based platforms, and the alleged platform account balances were created,” according to the lawsuit. Meanwhile, Qin spent investor monies on himself and other “undisclosed high-risk ventures.” He also prohibited investors from redeeming their accounts, instead enticing them to move their balances from the Sigma fund to the VQR fund, allowing their balances to remain in the system. The agency noted in a news statement that “the lawsuit asserts that no monies were moved and the redemption requests remain unresolved.”

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The SEC’s lawsuit against Virgil Capital comes at a time when there is more attention and popular focus on cryptocurrencies as the values of key crypto assets surge. Following a similar bull run in 2018, other crypto hedge funds formed. Many went bankrupt in the years after bitcoin prices went into a sustained decline beginning in late 2018.

Qin’s fund, which was established in 2016, was highlighted in The Wall Street Journal and on CNBC. He said in the interview that his fund had exclusive algorithmic trading tactics that enabled it to “gobble up” pricing disparities across exchanges “before anybody else gets there.”

According to an April story in the online journal The Block, Virgil Capital managed $100 million in assets. It had lagged the larger Bitcoin market in the first two months of this year and was asking for investors to sign up for the two funds’ waiting lists.

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