Since its creation, Virgil Sigma purported to employ a strategy to earn profits from arbitrage opportunities in the cryptocurrency market, specifically, by using a trading algorithm to take advantage of price differences for a number of cryptocurrencies, including Bitcoin and others, in approximately 40 different exchanges around the world, including three exchanges located in the United States. This strategy was touted by QIN to the investing public as “market-neutral,” meaning the fund was not exposed to any risk from the price of cryptocurrency moving up or down and therefore provided a relatively safe and liquid investment. QIN exercised day-to-day control over Virgil Sigma and was responsible for tracking the fund’s balances at different trading exchanges, designing the algorithms to implement arbitrage trading, and preparing monthly investor statements.
Bitcoin, the largest digital asset, trades at a fraction of its all-time high, down from more than $68,000 in November 2021 to about $23,000 on Wednesday.
Wrapped Bitcoin logo displayed on a phone screen and representation of Bitcoin are seen in this illustration photo taken in Krakow, Poland on June 10, 2022. (Jakub Porzycki/NurPhoto via Getty Images)
While cryptocurrencies have had crashes before, most recently in 2018, this crash has been broader and more systemic. A major hedge fund filed for bankruptcy earlier this summer, which in turn has caused other cryptocurrency brokers to collapse as well.
Qin Attempts to Steal Assets From VQR to pay Virgil Sigma Investors
In or about December 2020, faced with redemption requests from the Virgil Sigma fund that he could not meet, QIN demanded that the Head Trader at VQR wind down all trading positions at VQR and transfer a portion of the funds to QIN so that QIN could use that money to pay off these redemptions to Virgil Sigma investors. QIN issued the demand even though the Head Trader advised QIN that closing out VQR’s then-current trading positions, rather than holding those positions in accordance with VQR’s directional trading strategy, would result in losses to VQR’s investors.
At QIN’s direction, the Head Trader accordingly closed out VQR’s positions and turned over access to VQR’s trading accounts to QIN.
Virgil Sigma to pay for personal expenses such as food, services, and rent for a penthouse apartment in New York, New York; (b) using a substantial portion of investor capital from Virgil Sigma to make personal, often illiquid, investments in other entities that had nothing to do with cryptocurrencies (for example, in or about October 2018, QIN invested hundreds of thousands of dollars stolen from Virgil Sigma in a real estate investment); and (c) using a substantial portion of investor capital from Virgil Sigma to invest in crypto-assets that had nothing to do with the fund’s stated arbitrage strategy (or example, in or about 2018, QIN invested funds from Virgil Sigma in certain initial coin offerings, a speculative form of investing in new issues of cryptocurrency).
Essex County who was prosecuted in January for her alleged role in the fraudulent ICO that had swindled off investors of $30 million.
The federal court agreed to the U.S. government ‘s appeal for participation in the cryptocurrency scam lawsuit; placing it on hold before a separate case is decided against the initial coin offering (ICO) proponents of the Blockchain Terminal (BCT).
Conspiracy to commit wire fraud charges
Two Canadian internationals, 68-year-old Edith Pardo and 46-year-old Boaz Manor, are charged with one count of conspiracy to commit wire fraud each, three charges of wire fraud and another count of operating a fraudulent ICO.
In addition, the SEC also accused Pardo and Manor of fraud for swindling in a fake ICO over $30 million from hundreds of investors; it promised to distribute Bloomberg Terminal crypto variants.
The CFTC, which a budget last year of $304 million with roughly 666 employees, is a fraction of the size of the SEC, which had a budget of nearly $2 billion and 4,500 full-time employees.
“(The cryptocurrency industry is) trying to get anyone other than the SEC to regulate them,” said Cory Klippsten, CEO of Swan Bitcoin. While an advocate for Bitcoin, Klippsten is deeply skeptical of much of broader crypto industry, which has produced a myriad of tokens and other coins that he considers to be nothing more than scams.
In a press conference Stabenow and Boozman both acknowledged that the while they have faith that the CFTC is up to the task of regulating cryptocurrencies, the agency would need support.
Along with the Toomey legislation and the Lummis-Gillibrand legislation, a proposal is being worked out in the House Financial Services Committee, though those negotiations have stalled.
Committee chair Maxine Waters, D-Calif., said last month that while she, top Republican member Patrick McHenry of North Carolina and Treasury Secretary Janet Yellen had made considerable progress toward an agreement on the legislation, “we are unfortunately not there yet, and will therefore continue our negotiations over the August recess.”
President Joe Biden’s working group on financial markets last November issued a report calling on Congress to pass legislation that would regulate stablecoins, and Biden earlier this year issued an executive order calling on a variety of agencies to look at ways to regulate digital assets.
The two firms, CG Blockchain Inc. and BCT Inc., which owned the two defendants, organized the fraudulent ICO.
Cryptocurrency scam lawsuit stalled
The most controversial figure of the accused members is contested Canadian citizen, Boaz Manor. The manor is notably a convicted hedge fund scam artist who has a history of jail sentence after a hedge fund that he helped establish failed.
In addition, Manor accepted a lifetime investment ban; sentenced to four years for the $106 million scams.
Stanley Chesler, federal judge of New Jersey, approved a bid by state prosecutors to stay the cryptocurrency scam lawsuit against the fraudulent hedge fund manager and the woman involved in the Bloomfield scam on June 24. Notably, the Bloomfield woman reportedly impersonated as a moneyed entrepreneur, awaiting their fraudulent charges to be settled.
The HSI New York El Dorado Task Force, with our incredible law enforcement partnerships, are committed to aggressively pursue fraud in all forms, regardless of how elaborate and profitable these schemes appear.
Rather than investing the fund’s assets in a cryptocurrency arbitrage trading strategy as advertised, QIN embezzled investor capital from Virgil Sigma and used the funds for purposes other than the purported arbitrage trading strategy, including: (a) using a substantial portion of investor capital stolen from Virgil Sigma to pay for personal expenses such as food, services, and rent for a penthouse apartment in New York City; (b) using a substantial portion of investor capital from Virgil Sigma to make personal, often illiquid investments in other entities that had nothing to do with cryptocurrencies.