A 24-year-old UNSW dropout has been sentenced to 7½ years in prison after pleading guilty to stealing about $US90 million ($123 million) from investors and spending the money on failed crypto investments and a penthouse apartment in New York City.
Canberra-born Stefan Qin, who claimed to have suffered gaming and sexual addiction stemming from a traumatic childhood, was sentenced on Thursday in New York City.
US district judge Valerie Caproni found Qin “deliberately and consciously chose a path” to rip off more than 100 investors, including falsifying account statements and lying about fund performance.
She said he was “a potentially very dangerous person” and “this kind of white-collar crime is just as devastating to victims as other types of crime, and it will be punished severely.”
The 7½-year sentence was designed to discourage others from similar crimes, said the judge.
More than 100 victims are left to squabble over the remaining assets. In a letter to the court, one investor said this “has up-ended my life, made me homeless and destitute, and taken away my dream of having a child and starting my own family”.
Another victim wrote: “It is a true test to describe all the losses we have suffered from Stefan Qin’s fraud … we took cautious steps in committing to this investment because these funds are literally all my life’s work that we have counted on to retire.”
I feel ashamed to look them in the eye and tell them I’m sorry, but I must.
— Stefan Qin
Qin said he “felt absolutely heartbroken” to read the letters, many of which were from family or friends.
“I feel ashamed to look them in the eye and tell them I’m sorry, but I must,” he said.
Qin ran a high-profile, multimillion-dollar crypto fund called Virgil Sigma Fund, founded in Sydney in 2017, through a company called Virgil Capital.
He raised millions of dollars from Australian and international investors, spruiking an arbitrage trading algorithm called Tenjin that took advantage of crypto price differences across 40 different exchanges around the world.
The then 20-year-old appeared on China Central Television and was profiled by The Wall Street Journal, which described him as a “crypto wunderkind” and reported his fund had returned 500 per cent over a 12-month period. By 2020, Qin had raised more than $US90 million.
However, behind the scenes he was using the hedge fund as his own piggy bank, using investor money to live a lavish lifestyle and repeatedly lying about the fund’s performance.
‘I thought life was a video game’
According to court documents, Qin directed millions of dollars towards partying and lavish entertainment and speculative crypto investments that were not aligned with the fund’s arbitrage strategy. He also maintained a $US23,000-a-month apartment in Lower Manhattan.
When investors began making redemption requests in late 2020, Qin tried to drain the assets of his second crypto fund, the VQR Multistrategy Fund, to pay them back.
The court heard this second fund was established for the explicit purpose of repaying the lost funds of the first.
“Instead of coming clean, I did the worst thing and doubled down on my lies,” Qin told the judge. “I thought I was the main protagonist and life was a video game and I had just found the cheat code to beat it. As we know, life is not a video game.”
His assets were frozen at the end of last year when the US Securities and Exchange Commission was alerted to his behaviour, and Qin immediately flew to New York City from Seoul in South Korea to face criminal charges. In February, he pleaded guilty to one count of securities fraud.
In his defence, Qin’s lawyers, Kaplan Hecker & Fink, pointed to a traumatic childhood in Canberra as the root cause of his disastrous mistakes.
The lawyers said Qin, born to Chinese nationals, was raised in a household with an “overbearing focus” on education.
Court documents suggest he was frequently bullied at school, particularly by a boy named Taiyang Zhang, who ultimately would co-found Virgil Capital with Qin.
According to Qin’s defence, Mr Zhang would physically bully him at school but then play video games with him in the evenings.
At home, the documents say Qin recalls his parents’ physical abuse towards each other worsening after his mother discovered his father’s infidelity.
As a teenager, Qin withdrew into the internet, playing video games obsessively for 15 to 16 hours a day. He excelled at mathematics at school and was accepted early into the Australian National University, but dropped out in 2015, the year his parents divorced.
To escape his social anxiety and his parents’ despair, Qin moved to Beijing to live with his sister Lisa. There he interned at a crypto payment provider called Remitsy, where he built arbitrage software.
In 2016, Qin returned to Sydney and then bounced around universities: first at UNSW where he founded a start-up called Dime Payments, and then at Minerva Schools, a “start-up university” based in San Francisco.
The fund, the ‘bully’ and the mentor
Around this time, Qin said he reconnected with his former childhood “bully” Mr Zhang, who suggested they form Virgil Capital alongside Qin’s mentor Dorjee Sun, an Australian entrepreneur best known for work developing carbon credit trading.
According to court documents, Qin would be the face of the fund, Mr Zhang would code the backend and Mr Sun was a silent investor.
The Australian Financial Review does not suggest Mr Zhang or Mr Sun knew about the fraud.
Virgil Capital soon became Qin’s focus, and by the end of his first “traumatic” and “toxic” romantic relationship with a fellow student, he resolved to drop out of school again and focus solely on the fund.
Much of Qin’s defence focused on his social anxieties caused by a traumatic childhood and his young age, which his lawyers say impaired his decision-making.
They pointed to his diligent assistance to authorities, adding he has also “succeeded in drastically curtailing the compulsive behaviours underlying his psychopathology, including by reducing his gaming use and wholly abstaining from engaging with escorts”.
They said his improvement in controlling his “addictive tendencies towards gaming and sexual behaviours”, coupled with his assistance in recovering assets mean that, with treatment, Qin could abstain from destructive behaviour.
His defence lawyers asked for a sentence of 24 months, noting Qin immediately took responsibility for his crimes and helped authorities recover some lost money.
However, prosecutors had urged “substantial” prison time given the “brazen nature” of Qin’s actions, and Judge Caproni said the public must be protected from Qin, who had no trouble lying to investors.
Qin faced up to 20 years in prison, but the judge has decided on a 7½-year sentence.
A receiver, appointed by the court, is currently tracing the stolen funds, which were sent to other jurisdictions and platforms around the world and in various forms of cryptocurrency.
Source: Financial Review