SEC Charges Cryptocurrency Trader With Fraud, Freezes Assets

Last week a 23-year-old Australian cryptocurrency trader was charged by the U.S. Securities and Exchange Commission with securities fraud, and as of this week his assets have been frozen.

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Stefan Qin, also a part-time resident of New York, is accused of allegedly misappropriating millions of dollars of assets and misleading investors about the management of their funds for years.

Qin owns and operates several LLCs he used to carry out his scheme, with five of them being named as defendants in the suit. The SEC claims that starting in June of this year, the young cryptocurrency entrepreneur told investors who asked for their money from one limited partnership pooled investment fund, that he was putting it into a second fund. However, records show the money never appeared and those redemption requests are still outstanding.

“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 SEC said Tuesday.

Qin founded the first fund, called the Virgil Sigma Fund LP, when he was just 19 years old. It is managed by another LLC managed by Qin, which is in turn a subsidiary of another LLC. This chain of interlocking companies, all owned by Qin, is how he was able to shift around money from the funds without alarming investors according to the SEC.

In the complaint, filed in the Southern District of New York, Qin is also accused of borrowing from the two funds for personal use and engaging in undisclosed, high-risk investments. The complaint further alleges Qin of currently attempting to misappropriate funds back into the Virgil Sigma Fund.

“This emergency action is an important step to protect investor assets and prevent further harm,” said Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit. “Qin allegedly made false promises to lure investors and then continued his deception to conceal his misuse of investor funds.”

In addition to the freeze of his assets, the SEC has asked that stiff, long-lasting penalties be placed on Qin and his LLCs. These include a permanent ban on selling securities, a requirement that he disgorge the ill-gotten funds and pay a large fine.

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