Aussie crypto kid gets over seven years in US jail for Ponzi scheme

By Larry Neumeister September 16, 2021 â€" 8.52am

Stefan Qin’s investors thought they’d found a sure thing -- a hedge fund that was generating 500 per cent returns by exploiting the price gaps between cryptocurrencies on 40 exchanges throughout the world.

Instead, the 24-year-old self-proclaimed math whiz used their money on a lavish lifestyle, including a $US23,000-a-month Manhattan penthouse apartment, and failed investments in initial coin offerings and real estate. Federal prosecutors said Qin defrauded more than 100 people out of about $US90 million ($123 million).

Stefan Qin has been sentenced to seven-and-a-half years in prison over his crypto fraud.

After some of his victims said Qin should spend as long as possible behind bars for securities fraud, US District Judge Valerie Caproni sentenced him on Wednesday (local time) to seven-and-a-half years and called him “a potentially very dangerous person.”

Qin “deliberately and consciously chose a path” to rip off investors, including fake account statements and lying to clients about how he was using their money, Caproni said. “This kind of white-collar crime is just as devastating to victims as other types of crime, and it will be punished severely.”

The judge also said the sentence was intended to discourage others from similar crimes and to protect the public from Qin, who had no trouble lying to his investors.

“Virgil had a stated market strategy of ‘market neutral,’ safe investments,” Manhattan US Attorney Audrey Strauss said in a statement. “Qin’s investors soon discovered that his strategies weren’t much more than a disguised means for him to embezzle and make unauthorised investments with client funds.”

‘Instead of coming clean I did the worst thing and doubled down on my lies. I thought I was the main protagonist and life was a video game and I had just found the cheat code to beat it.’

Stefan Qin

More than a dozen investors had written letters to the judge, including several who said they had lost their life savings to Qin - an Australian who in 2016 won acceptance into a program for high-potential entrepreneurs at the University of New South Wales with a proposal to use blockchain technology to speed up foreign exchange transactions, but dropped out of college to found Virgil Sigma Fund the following year.

One woman said she was left “homeless and destitute.”

Qin told the judge he “felt absolutely heartbroken” to read the letters, many of whom were family, friends or business associates.

‘I feel ashamed’

“I feel ashamed to look them in the eye and tell them I’m sorry, but I must,” he said.

Qin had claimed he developed a special trading algorithm called Tenjin that could earn profits by buying a cryptocurrency on one exchange and selling it at a higher price on another.

Shortly after starting Virgil, he bragged the fund produced an annual return of 500 per cent in 2017. The Wall Street Journal wrote a profile of him in 2018, when he managed $US23.5 million. By 2020, he’d raised more than $US90 million.

He said he started the hedge fund in his first year of college using an algorithm he thought was an “amazing money making machine.” But “things started to go south, people started to become suspicious of my promises,” Qin told the judge.

“Instead of coming clean I did the worst thing and doubled down on my lies,” Qin said. “I thought I was the main protagonist and life was a video game and I had just found the cheat code to beat it. As we know, life is not a video game.”

Near the end of last year, as losses mounted, investors started to demand their money back. To make those payments, Qin tried to raid another fund he had started, the VQR Multistrategy Fund, according to prosecutors. But the US Securities and Exchange Commission in December got cryptocurrency exchanges to put a freeze on VQR’s assets.

After that, Qin flew back to the US from South Korea, surrendered to authorities in February and pleaded guilty the same day.

While Qin faced as much as 20 years in prison, federal sentencing guidelines call for 151 to 188 months. Probation officials recommended 96 months, based on his lack of a criminal record and his voluntary return from overseas to face charges.

‘Brazen’ fraud

Prosecutors had urged “substantial” prison time given the “brazen nature” of Qin’s crime and the need to stop discourage others from doing the same thing.

“Qin used that hedge fund as his own piggy bank, stealing investor money to live a lavish lifestyle and repeatedly lying to investors about what he was doing with their money,” Assistant US Attorney Daniel Tracer said in a sentencing memo.

Defence lawyers asked for a sentence of 24 months, noting Qin took responsibility for his actions and helped authorities to recover some of the lost money.

One investor told the judge in a letter not to be swayed by Qin’s personal charm, a characteristic that helped him defraud so many.

“Mr Qin did not steal food from a grocery to feed his family,” said the investor, Steve Reich. “He stole over $US90 million from ordinary people and has shown no genuine remorse.”

He was ordered to report to prison on December 15.

The case is US v. Qin, 21-cr-00075, U.S. District Court, Southern District of New York (Manhattan)

Bloomberg

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