SEC proposes receiver appointment in case against Virgil Sigma Fund founder
The United States Securities and Exchange Commission (SEC) is making further progress in its action against 23-year old Stefan Qin, the founder of Virgil Sigma Fund. On January 20, 2021, the SEC proposed the appointment of a receiver over defendants Virgil Capital LLC, Montgomery Technologies, LLC, Virgil Technologies, LLC, Virgil Quantitative Research, LLC and VQR Partners, LLC.
By prior orders of the New York Southern District Court, the assets owned and controlled by the Entity Defendants are currently subject to a freeze, and the defendants therefore are not permitted to transfer funds to pay their ordinary and necessary business expenses. The SEC and Stefan Qin, on his own behalf and as managing member of each of the entity defendants, agree that the appointment of a receiver over defendants is necessary.
The parties state that the appointment of an equity receiver will permit the Entity Defendants to pay expenses that are necessary to maintain the value of the assets they hold, while also allowing an assessment as to whether the Entity Defendants can fully account for investor funds.
The Commission recommends that the Court appoint Robert A. Musiala, Jr. of Baker Hostetler as the Receiver, and defendants support the recommendation.
The receiver will be marshalling and preserving all assets of the Entity Defendants that:
- are attributable to funds derived from investors, including without limitation any assets associated with either Virgil Sigma Fund, LP or VQR Multistrategy Fund LP;
- are held in constructive trust for the Entity Defendants;
- were fraudulently transferred by the Entity Defendants, or by any of their owned or controlled subsidiaries, or by any person acting on behalf of, or who controlled any of, the Entity Defendants; and/or
- may otherwise be includable as assets of the estates of the Entity Defendants.
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.