Stephen He Chen, who managed a $90 million hedge fund, was sentenced by the Southern District Court in New York to 90 months in prison for defrauding its investors.

He was also ordered to confiscate approximately $54.8 million.

The verdict was handed down on Wednesday, after approve Chen pleaded guilty to a securities fraud earlier in February after he was indicted by the US Securities and Exchange Commission (SEC) at the end of last year.

Fraudulent crypto fund:

Chen owned and operated two crypto hedge funds, Virgil Sigma and VQR, between 2017 and 2020.

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He initially contacted investors saying that he was using an arbitrage strategy to earn profits from the cryptocurrency markets, which he described as being risk-resistant.

Chen claimed that Virgil Sigma was the first hedge fund he opened, and that it has made profits every month since August 2016, with the exception of March 2017.

These allegations and lies have helped him raise up to $90 million in assets under the management of this fund.

The “VQR” fund was established in February 2020, and unlike the other fund, it has been following an active trading strategy in the cryptocurrency market, which means making profits from market fluctuations.

This fund also raised about $24 million from investors.

After fabricated allegations and lies, Chen began defrauding Virgil Sigma fund investors in 2017, according to authorities.

The fraudster used a large part of the investors’ funds to cover personal expenses and also used the proceeds to directly invest in cryptocurrency markets such as Initial Coin Offerings (ICOs).

In December 2020, he closed all market positions with VQR funds at a loss for using the money allegedly for redemptions of Virgil Sigma fund investors.

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But Chen’s investors soon discovered that his strategies were nothing more than a tactic and a lie that he used to embezzle and make unauthorized investments in clients’ money.

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US Attorney Audrey Strauss said that when faced with unfulfilled redemption requests, Chen doubled down on his plan by trying to loot money from the VQR fund to meet the demands of victim investors.

Added:

Chen’s brazen and wide-ranging scheme has left his trapped investors on a swing of more than $54 million, and he has now been sentenced to an appropriately lengthy prison sentence of more than seven years in federal prison.

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