A cryptocurrency hedge-fund manager who lied about returns on his $90m fund and siphoned money from its accounts to cover a lavish lifestyle was sentenced to 7½ years in prison on 15 September.
Stefan Qin, 24 years old, pleaded guilty in February to one count of securities fraud after prosecutors said he ran the fund, Virgil Sigma Fund LP, like a Ponzi scheme for three years until its implosion in late 2020. The US attorney’s office for the Southern District of New York said many of the more than 100 investors in the fund were scammed.
Federal sentencing guidelines called for 15½ to nearly 20 years in prison, but US District Judge Valerie Caproni said at a hearing 15 September in federal court in New York that those recommendations were draconian.
Qin’s lawyers had asked for a two-year imprisonment, but Judge Caproni said she needed to give a sentence that dissuaded others from committing similar white-collar crimes. Qin “frittered away millions of dollars” and wiped out some victims’ savings, she said.
Prosecutors had recommended a sentence of eight years, noting that Qin had no known criminal history and had voluntarily returned to the US from South Korea, where he had been living, to face justice when he learned of the federal investigation. Qin has also cooperated with a court-appointed receiver’s efforts to help locate and clawback investor money, prosecutors said.
A net $65m was lost in the scheme, according to Judge Caproni. The receiver has located about $5m, the judge said.
At the sentencing, Qin’s lawyer, Sean Hecker, said his client had a chaotic family life growing up and had been bullied as an adolescent. The trauma of his childhood affected his decisions, the lawyer said.
Qin told the judge on 15 September that he was swept away by the idea that many of his investors — including family, friends and business associates — saw him as a financial wunderkind. When his fund couldn’t meet the promises he made to investors, he said he lied.
“I abused their trust in immoral and illegal ways to boost my success,” he said.
Qin’s fraud highlights the growing number of scams in cryptocurrency markets operating with little regulation and as bitcoin’s value soars. The Federal Trade Commission said consumers reported losing nearly $82m to crypto-related fraud in the fourth quarter of 2020 and first quarter of 2021. It was more than 10 times the amount during the same six-month period a year earlier.
Prosecutors said Qin billed Virgil Sigma as an adherent of a highly profitable low-risk strategy specialising in arbitrage trading using 40 cryptocurrency exchanges. He made public appearances, including in the media, to falsely promote glowing returns. The Wall Street Journal profiled Qin in 2018 and repeated some of his false claims.
In reality, Qin used Virgil Sigma funds to pay off redemption requests from investors, to cover the rent on his luxury apartment in New York City and to make risky investments unrelated to cryptocurrency, prosecutors said. As he drained Virgil Sigma’s accounts, he dipped into the assets of another cryptocurrency hedge fund that he ran, the prosecutors said.