SEC obtains preliminary injunction against Virgil Sigma Fund founder
Less than a fortnight after the United States Securities and Exchange Commission (SEC) filed its action against Stefan Qin and a number of entities he founded, the regulator has secured a preliminary injunction against the defendants. This becomes clear from the latest filings with the New York Southern District Court.
On January 6, 2021, Judge Lorna G. Schofield signed an order for preliminary injunction freezing assets and providing relief.
The Judge ruled that the SEC has made a sufficient and proper showing in support of the relief granted. According to the Court, an inference can be drawn that Entity Defendants (that is, the entities founded by Qin) have violated, or aided and abetted violations of, the securities laws, namely Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a); Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b); and Exchange Act Rule 10b-5, 17 C.F.R. § 240.10b-5.
The Commission has further demonstrated that good cause exists to believe that an asset freeze is necessary to maintain the status quo and prevent the dissipation or expatriation of assets that likely belong to investors, and may be necessary to satisfy a judgment of disgorgement, prejudgment interest, and for civil penalties.
The Court concluded that it is therefore appropriate for it to issue the Preliminary Injunction, thus preventing the dissipation of assets and preserving the status quo. Good cause exists to believe that, unless restrained and enjoined by order of this Court, documents relevant to this action may be altered, destroyed or become unavailable for discovery, the Judge noted.
Upon the request of counsel for the SEC, each defendant will have to provide information in his, or its, control identifying
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the names, contact information, and payments received from and/or made to any and all investors in the Funds controlled or operated by any of the defendants, and
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the location and value of all assets held by any defendant, Virgil Sigma Fund, LP or VQR Multistrategy Fund LP, or traceable to investor monies.
The complaint against Qin alleges that he has been engaged in a deceptive course of conduct, using materially false and misleading statements to investors and others, causing serious harm and the threat of further harm to two funds he controls, the Virgil Sigma Fund LP (the “Sigma Fund”) and the VQR Multistrategy Fund LP (the “VQR Fund”).
According to the Complaint, Qin has been his control and ownership of five entities, Virgil Technologies LLC, Montgomery Technologies LLC, Virgil Quantitative Research, LLC, Virgil Capital LLC, and VQR Partners LLC. He 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.
Qin, who at 19 founded the Sigma Fund and its managing entity, Virgil Capital, has consistently claimed since 2016 that his proprietary, market-neutral arbitrage trading strategy in cryptocurrencies uses more than 40 digital asset trading platforms around the world, and has achieved positive returns in every month except one.
The SEC’s Complaint also alleges that Qin and Virgil Capital prepared and provided to investors documentation for the Sigma Fund in 2019 that claimed the Fund held millions of dollars worth of digital assets at 39 trading platforms, including three of the largest U.S.-based platforms. In reality, the Sigma Fund held no assets at any of those US-based platforms, and the purported platform account balances were fabricated.
Beginning in mid-2020, investors in the Sigma Fund were thwarted in their attempts to redeem their investments. Through a series of false and misleading devices, Qin convinced at least nine investors, whose interests totaled approximately $3.5 million, to “transfer” their investments from the Sigma Fund into the VQR Fund.
However, the transfers never materialized and Qin has used excuses and falsehoods directed at investors, and the separate personnel who operate the VQR Fund, to evade any explanation for where the investors’ assets are.
In December 2020, Qin sought the aid of his colleagues who manage the VQR Fund in Qin’s attempt to withdraw $1.7 million that he claimed he urgently needed to pay back loans to lenders he feared in China. When VQR Fund employees refused his efforts to withdraw investor assets, Qin made numerous admissions about his conduct, including having told “white lies” to investors to placate them.
At the same time, Qin has not relented from his attempts to withdraw assets from the VQR Fund which belong to investors.
By engaging in the conduct, Qin and the entities he controls have violated, and unless restrained and enjoined will continue to violate, the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The Entity Defendants also aided and abetted Qin’s violations of the same provisions.