Stefan Qin was just 19 when he claimed to have the secret to cryptocurrency trading.
Buoyed with youthful confidence, Qin, a self-proclaimed math prodigy from Australia, dropped out of college in 2016 to start a hedge fund in New York he called Virgil Capital. He told potential clients he had developed an algorithm called Tenjin to monitor cryptocurrency exchanges around the world to seize on price fluctuations. A little more than a year after it started, he bragged the fund had returned 500%, a claim that produced a flurry of new money from investors.
He became so flush with cash, Qin signed a lease in September 2019 for a $23,000-a-month apartment in 50 West, a 64-story luxury condo building in the financial district with expansive views of lower Manhattan as well as a pool, sauna, steam room, hot tub and golf simulator.
In reality, federal prosecutors said, the operation was a lie, essentially a Ponzi scheme that stole about $90 million from more than 100 investors to help pay for Qin’s lavish lifestyle and personal investments in such high-risk bets as initial coin offerings. At one point, facing client demands for their money, he variously blamed “poor cash flow management” and “loan sharks in China” for his troubles. Last week, Qin, now 24 and expressing remorse, pleaded guilty in federal court in Manhattan to a single count of securities fraud.
“I knew that what I was doing was wrong and illegal,” he told U.S. District Judge Valerie E. Caproni, who could sentence him to more than 15 years in prison. “I deeply regret my actions and will spend the rest of my life atoning for what I did. I am profoundly sorry for the harm my selfish behavior has caused to my investors who trusted in me, my employees and my family.”
Eager Investors
The case echoes similar cryptocurrency frauds, such as that of BitConnect, promising people double-and triple-digit returns and costing investors billions. Ponzi schemes like that show how investors eager to cash in on a hot market can easily be led astray by promises of large returns. Canadian exchange QuadrigaCX collapsed in 2019 as a result of fraud, causing at least $125 million in losses for 76,000 investors.
While regulatory oversight of the cryptocurrency industry is tightening, the sector is littered with inexperienced participants. A number of the 800 or so crypto funds worldwide are run by people with no knowledge of Wall Street or finance, including some college students and recent graduates who launched funds a few years ago.
Qin’s path started in college, too. He had been a math whiz who planned on becoming a physicist, he told a website, DigFin, in a profile published in December, just a week before regulators closed in on him. He described himself on his LinkedIn page as a “quant with a deep interest and understanding in blockchain technology.”
In 2016, he won acceptance into a program for high-potential entrepreneurs at the University of New South Wales in Sydney with a proposal to use blockchain technology to speed up foreign exchange transactions. He also attended the Minerva Schools, a mostly online college based in San Francisco, from August 2016 through December 2017, the school confirmed.
Crypto Bug
He got the crypto bug after an internship with a firm in China, he told DigFin. His task had been to build a platform between two venues, one in China and the other in the U.S., to allow the firm to arbitrage cryptocurrencies.
Convinced he had happened upon a business, Qin moved to New York to found Virgil Capital. His strategy, he told investors, would be to exploit the tendency of cryptocurrencies to trade at different prices at various exchanges. He would be “market-neutral,” meaning that the firm’s funds wouldn’t be exposed to price movements.
And unlike other hedge funds, he told DigFin, Virgil wouldn’t charge management fees, taking only fees based on the firm’s performance. “We never try to make easy money,” Qin said.
By his telling, Virgil got off to a fast start, claiming 500% returns in 2017, which brought in more investors eager to participate. A marketing brochure boasted of 10% monthly returns—or 2,811% over a three-year period ending in August 2019, legal filings show.
His assets got an extra jolt after the Wall Street Journal profiled him in a February 2018 story that touted his skill at arbitraging cryptocurrency. Virgil “experienced substantial growth as new investors flocked to the fund,” prosecutors said.