Founder Of $90 Million Cryptocurrency Hedge Fund Charged With Securities Fraud
Many investors and fund managers will be aware of the recent news surrounding Stefan Qin who defrauded over 100 investors in his two investment funds. According to press release from the US Department of Justice in February 2021, Qin operated two funds between 2017 and 2020, Virgil Sigma Fund LP of New York and VQR Multistrategy Fund LP of the Cayman Islands. During that time Qin lied to investors and siphoned off the roughly $90 million from Sigma to fund a lavish lifestyle.
U.S. Attorney Audrey Strauss said: “Stefan He Qin drained almost all of the assets from the $90 million cryptocurrency fund he owned, stealing investors’ money, spending it on indulgences and speculative personal investments, and lying to investors about the performance of the fund and what he had done with their money. Then, as he further admitted today, Qin attempted to steal money from another fund he controlled to meet redemption demands of the defrauded investors in the former fund. The whole house of cards has been revealed, and Qin now awaits sentencing for his brazen thievery.”
This case highlights the importance of a number of due diligence factors that we need to be cognizant of in this industry especially when it comes to funds investing into digital assets; history and track record of the investment manager, effectiveness of controls regarding money and asset management, custody and investor statement information accuracy to name just a few.
We always recommend that investors and due diligence operators ask us for our input on these types of funds as we have experience with this asset class. What day-to-day access does the manager have with the fund’s digital assets? Where are the assets kept when they are not traded? Is multi-person access setup on the accounts and wallets holding the fund’s assets? Does the fund have a third party fund administrator that is assisting in pricing the NAV of the fund and inputting information for use in the investor statements? Are the auditors fully aware of the ownership and authenticity of the fund’s digital assets?
Once again, the importance of strong corporate governance and independent directors on the board of a fund such as this cannot be overstated. If you would like to find out more please do not hesitate to contact Sean Inggs at IMS for more details.
About the Author
IMS is one of the longest established company management firms in the Cayman Islands. IMS is licensed by the Cayman Islands Monetary Authority to provide independent directors, company management and incorporation, mutual fund administration, captive insurance and trust services. For more information about our services, please visit www.ims.ky/contact-us/.
Disclaimer: this publication does not constitute legal or professional advice and should not be relied on as such.