Founder of $90M cryptocurrency hedge fund sentenced to seven years in prison | Hacker News Reader

Founder of $90M cryptocurrency hedge fund sentenced to seven years in prison

justice.gov

127 pointsclpm4j106 comments

What type of visa does a 20 year old get to start a hedge fund on wall street? I’m really curios, because working on this is my dream but I’m stuck as an L1 engineer at faang instead :(. I worked really hard to get here but I really wish I could do something like this (legitimately) instead.

EB-5 Immigrant Investor Program - all it takes is 1mil usd and you are in.

Back then it was 500k. And also it's not that you loose the money, you actually do invest it but it has to be on businesses that the government green lights as "job creators". When I looked into it, those were mostly agriculture or real estate.

It’s still 500k to invest in poor locations. Unless I’m out of date and that has changed as well

If I remember correctly, some fancy places in New York are eligible for the 500k exemption. Might check that!

I think they used a gerrymandering type argument that the fancy place was part of an area including a bunch of poor folk. The drawing of the area was kind of creative. It was taking the piss slightly but they got away with it.

You need to invest the money too. From my understanding most people pool the money into a ready-to-go Real Estate Development company which then makes real estate loans. Hence it's an equity investment, meeting the EB5 requirement, but in practice its basically a bond. Real estate money gets refinanced as long as the deal is not terrible.

Gotta wonder how "real estate" qualifies as a job creating field. Sounds like BS to me

Last I checked, my mortgage does in fact have interest on it, and the company that services that loan does have employees.

Sure, a call center. Same as any business that sells a service to the public.

Yeah I mean it's not zero, but there's a lot of capital going into a thing that's not employing _that many people_, even beyond the value judgements around that.

Granted, maybe "real estate" here also means construction (which has its issues but I mean, people are building stuff). But I'm imagining more the "let me invest in buildings and make money off of it"-style industries.

In an ideal completely honest and devoid of mischief world, immigration policy would be everyone lives and works wherever they want. So yeah, the argument that immigration policy is bullshit stands on its own weight.

The investor visa is basically the ruling class telling you they will let you work in their companies if you also invest in the place where they park their generational wealth.

I think the investment is supposed to support 10 US jobs. Mostly in construction I imagine. There is a certain amount of BS.

If you've got the chops to run a hedge fund, an O-1 parlayed into an EB1A green card.

Or, if you're from a listed country, an E-2 treaty investor visa.

> If you've got the chops to run a hedge fund

Apparently not.

Is there anything more? Just make a 1M investment and you get a greencard?

Actually many countries have similar systems in place. For instance Spain's costs around 500,000 EUR (and then you must live in Spain for the next 10 years)

Reactions to discovering this kind of thing exist tend to vary. https://www.goldenvisas.com/country

The temptation to buy a passport for an island somewhere for a 'donation' is strong, however, its not as obvious as a shiny car in your driveway.

found your company, hire yourself on h1/o1.

Not really possible when you’re already inside US with a visa tied to your company. Plus not sure how investors would see a foreigner setting up a us company he can’t run without their investment (risk coming from gov ineptitude is not something anyone likes)

email me

Will do!

I'm confused by this comment,

(1) because you're hoping to know how a 20-something year-old led millions of dollars' worth of scams, to... emulate it?

(2) because you feel stuck as somebody working at a FAANG (I know it might just be another wednesday for some HN users but I'll remind them that faang work still remains the 1% for the plebs not graced by "that" touch)

There are ways to find inspiring leaders that don't involve them spending nearly a decade in prison. For one, thorough discussion with interesting people (people you deem interesting probably are, you made it to a faang) of all ages (success in youth is lovely but unless you bet on chance being on your side you might want to broaden your horizons), and accepting that leadership takes many shapes - not just the ones that make the bad kinds of headlines.

I'm not your target audience though, and probably just ruminating helplessly as an answer to your message fishing for future investors - apologies.

What's confusing? They clearly said they wanted to "start a hedge fund on wall street ... legitimately" which is entirely valid and something others have found success in.

Why did you still assume their intention was to scam? And what does any of this have to do with finding leaders?

Because of the subject they're responding to, perhaps. They're a top-level visible reply to an article about a hedge fund 20-something getting sent to prison for years, so perhaps I'm dim but I'd say there are troves of better articles about hedge funds to be asking for guidance on how to get there, unless the "there" is prison of course.

Although I might just be dim, and you and I simply don't have the same understanding of context then.

They're asking about how the scammer obtained a seemingly undeserved visa, not about how to scam people.

Then I apologize for misunderstanding the point of the post, and it's probably better for me to leave the whole chain without edit after this realization.

No worries! I was feeling a bit stick yesterday so apologize if the original doesn’t make much sense. Above is right, I was wondering how I could do something similar but legitimately, since last I checked biggest issue for me would be the immigration.

I know I’m in a super good situation, especially compared to others in the rest of the world, but there’s still that feeling when you know you’re ready for a new stage in your life yet some invisible hand is holding you back.

I'm not from the US but I have heard of a sometimes tough road to take no matter how anchored and "productive" you are. In case the road is blocked in the US I'll offer the insight that Canada is a very welcoming country too :) (it has taken this European in, for one).

I wish you the best of luck with that immigration process.

He is from Australia, so they have access to the E-3 visa [0], which is a lot easier to get than most of the others. That is not to say that it is the visa he is on, I just wanted to highlight the possibility.

[0] https://en.wikipedia.org/wiki/E-3_visa

Yes, I figured that’s most likely it as well.

> is a 24-year old Australian national. According to its public marketing materials, Virgil Sigma has been profitable in every month from August 2016 to the present

So 24 now, in 2017 investors gave a 100mil to invest in crypto on the say so of a 19 year old who said they make money every month. Honestly not sure who the is the bigger bad guy in all this, the scammer or the scammed.

The key in every speculative bubble is to remember that you must exit, or you'll be the one holding the bag.

(I hate scammers like this guy, but the comparison is valid, I think)

How do I know if I'm in a speculative bubble?

You don't, at least not for sure. That's the reason why they exist in the first place, otherwise they couldn't really gain speed.

You are for sure, in the sense that life is a speculative bubble that'll eventually end in the heat death of the universe, and your exit is foreordained.

If you're looking for more actionable advice, it may be worth comparing the expected lifetime of the speculative bubble to your lifetime. Certain speculative bubbles - like the stock market, or fiat currency, or the U.S.A, or life on earth - have a fairly high chance of outliving you. Other speculative bubbles - like Solana, or $GME, or Clover Health - will probably be gone in a year or two. In between are stuff like more established cryptocurrencies (BTC and ETH), tech stocks, Silicon Valley real estate, etc. which might last for a few decades, long enough to raise children, but will likely be gone before your death.

As a couple general rules, the faster they rise, the harder they fall, and the longer something has been around, the longer it is likely to continue to be around. Huge profits can be made identifying the new invention that sticks around for decades, or cashing out of the institution that's about to collapse, though.

Thank you for the sober and measured response.

I must say though, that US fiat has cratered since being pulled off the gold standard around 1971, and the purchasing power is always declining.

It seems like some cryptos fill a similar niche gold and silver fills in the physical world. While any individual crypto could be a pump-and-dump , the basket of all cryptos represent a concept that I'm confident enough in to wager will retain utility for our foreseeable lifetimes.

The key to making money in the stock market it so buy high sell low. Or the other way around. I never remember which it is.

I seriously wonder how you differentiate between real crypto and a Ponzi scheme.

By definition, Ponzi scheme’s, like musical chairs, do work as long as people keep playing.

"The only winning move is not to play". I guess you might miss out on something, or miss out on making a tidy profit off a Greater Fool, but the peace of mind is worth it.

That only works if you have no wealth. If you have any wealth, you should diversify it. Only a fool would dump all their money into crypto, but also only a fool would put all their eggs into the basket of unbacked fiat. You're just picking which game to play, and hoping you play enough games with even enough odds that you don't lose too many at once.

I mean you could say the same things about any sort of investment that isn't risk-free (which is basically all investments that earn a return nowadays). I don't see anything fundamentally different about crypto than any other asset really.

I can be pretty sure that a diversified set of stocks, bonds, and maybe some real estate are not an outright scam, or that someone is going to make off with all of it because the whole thing is completely wild west.

Sure, there's a higher risk profile but also the payoff can be absolutely staggering.

Moreover the risks aren't evenly distributed: crypto isn't a homogenous space.

The risk isn't for everyone, but those that are intimately familiar with the space and practice reasonable risk management can do pretty well.

There's a reason why almost all tradfi trading firms have either already entered the space or are considering it.

Remember 2008? (I know, ages and ages ago.)

If you bought stocks in 2008, you would be massively up right now.

The problem with this is that even a well meaning and useful piece of technology will be called a scam and ponzi if they have a coin. Look at the layer one chains, ETH, SOL and AVAX. Are these ponzis?

By learning what they are. It's not that difficult. A pyramid scheme of any sort requires new participants continually. Crypto currency does not.

Whales depend on new money entering to keep the price from plummeting. I used to think of crypto’s as a decentralized ponzi where all the participants are incentivized to bring in as many new participants as possible. They’ve cut this part out and just decided to go with making fake money out of tether to prop up the price.

No, the price was rising well before any of the "whales" came in. You're just writing a narrative that suits your existing preconceptions.

Whales is a relative term for a percentile distribution; not a static designation for some arbitrary dollar threshold.

Crypto is a catch-all term at the moment. Some cryptos will be more useful than others. Some (like BTC) could be the digital equivalent of gold. Some will facilitate decentralized companies (e.g. LINK). Some will likely be Ponzi schemes (e.g. dogecoin).

Hard to understand the distinction between bitcoin and dogecoin using that logic. Both are PoW systems that can only do one thing: transfers.

Hard to understand the distinction between myspace and facebook.

Perceived value. It worths what people are willing to pay for. A lot of things work that way. Skeptics might wonder how long it would last, but less about how much it should be worth. People aren't only buying tech.

We do have a lot of scammers and useless coins, but tech is only one indicator of value, not the ultimate method to predict perceived value.

You are correct that they both work very similarly. In fact doge was heavily inspired by BTC. Both have PoW and coin minting as a result of block resolutions.

Granted I'm not an expert on doge, but one big difference that I know of is the limit of coins that will be minted – bitcoin caps at 21 million, dogecoin is uncapped.

That's a rather important fundamental when talking about a currency.

I would then point to the communities that hover around either BTC or Doge. From personal observation, BTC is more serious about digital currency as a possible store of value future, whereas doge is a joke / meme focused coin.

At the end of the day, a lot of it is marketing, which is why I actually thought Doge would be a possible contender for a 3rd place crypto coin around the time when Elon Musk was tweeting about it. I believe the fact that it is uncapped and that is really is more of a meme coin than anything serious (see the community around it) led to its downfall. It didn't have solid enough legs.

The "digital equivalent of gold" is nonsense though, WoW gold is the "digital equivalent of gold" too.

> By definition, Ponzi scheme’s, like musical chairs, do work as long as people keep playing.

This is not correct. You have to maintain a very particular ratio of new investments to redemptions in order for a Ponzi scheme to be stable. (The amount of money invested in a given period must equal or exceed the amount of money redeemed.) If that doesn't happen, which will almost always be true, you will flame out despite the fact that people are still playing.

But if the players of the Ponzi scheme are invested over many years, it’s still a ponzi, e.g. see Madoff. A slow moving ponzi looks different than a bank run.

His schemes lasted longer than crypto had been around for the general public.

> A slow moving ponzi looks different than a bank run.

No it doesn't; the failure of a Ponzi scheme is a bank run. The only difference is that the bank is trying to turn a profit on its deposits and the Ponzi scheme isn't.

Ponzi schemes require an exponential increase in the number of participants to remain viable. Bitcoin does not.

Well, that depends on what you're thinking about. Bitcoin does if the assumption is that its value continues to increase. And on the other side of things, a Ponzi scheme has no need for the number of participants to increase at all, or remain stable, if the fund manager is free to just revalue everyone's holdings. The part of the Ponzi scheme that causes it to fail is when I tell you you have more money than you actually have.

If people cannot agree on the definition of a term, they cannot communicate. I'll go with this:

"A Ponzi scheme (/ˈpɒnzi/, Italian: [ˈpontsi]) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.[1] The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds. A Ponzi scheme can maintain the illusion of a sustainable business as long as new investors contribute new funds, and as long as most of the investors do not demand full repayment and still believe in the non-existent assets they are purported to own."

https://en.wikipedia.org/wiki/Ponzi_scheme

Bitcoin simply does not fit that. Bitcoin is analogous to investing in gold.

> I go with the usual definition of Ponzi rather than thinking up my own

Sorry, what part of your quote differs from what I said? I know what a Ponzi scheme is.

> Bitcoin simply does not fit that.

The part of Bitcoin that doesn't fit that is that Bitcoin doesn't guarantee its own value will rise. If you're analyzing Bitcoin in the context of the idea that its value will rise, then it is a Ponzi scheme.

I'm sorry, I don't see at all how you get from the wikipedia quote to your version. Do you think gold is a ponzi fraud, too?

> The part of Bitcoin that doesn't fit

If it doesn't fit, you must acquit.

I honestly have no idea what you think I believe, but it doesn't appear to be connected to what I'm saying.

At this point Ethereum has a bunch of applications on top with quite a bit of demand, and you need ETH to pay the transaction fees, a portion of which are burned. Once proof-of-work is discarded early next year, the supply will start shrinking, and it'll be possible to value ETH like shares in a company doing stock buybacks. So I'd say that doesn't look much like a Ponzi scheme.

Lol you had me going for a minute there.

Yeah, I legitimately can't tell if that was supposed to be tongue-in-cheek sarcasm or not.

A Ponzi scheme requires creators/beneficiants to actively work on inviting new people by the virtue of simple advertisement. Most of creators/beneficiants of widely used cryptocurrencies do not do that.

Ponzi schemes require returns, and more specifically the source these returns being the newly invested funds rather than actual trading/investing activity that becomes the scam.

A crypto security on its own doesn't guarantee or promise returns, and gaining value because of other people buying in is no different than company stock also rising in price because of demand. That's just how trading works. The potential issue is if people bought in because of misleading or false details rather than public information.

> By definition, Ponzi scheme’s, like musical chairs, do work as long as people keep playing.

A shared heuristic, not a definition. You pretty much defined economic participation or confidence in any monetary system (applicable to all markets).

some red flag:

1. if you're making 600% annualized you don't take outside investors, you prop trade for your own account.

2. He's very young and didn't have any trading pedigree: normally you would expect someone like this to be ex-js/citsec/etc

3. Sometimes lavish life style can be a give away: often the real rain makers are pretty frugal.

4. Related to 2, but if you're gonna take outside investors for some reason and you're printing like that, you sure as hell aren't gonna take it from random individual. You would raise money from one or a couple big firms or possibly a ultra hnw individual.

I've been beating the market for a few years now (not 600% annualized of course). It's harder to find capital than you think it is. But, then again, I guess you're right. In order to consistently beat the market I've focused on beating the market and not trying to raise funds, so maybe that's why I've been able to do it. Kind of a catch-22.

Yeah it really depends on the asset class. A buddy of mine runs a small LS equity fund and it's been hard for him to grow his aum, even though he's been producing at least 5% alpha annualized for over 5 years.

On the other end of the spectrum is crypto, in which it is frighteningly easy to raise >10 figures at the snap of your fingers.

The 600% annualized is an important part of that: if you started with $1000 you'd need only four years to hit a million. Four more and it's a billion.

I was the other person profiled in the WSJ article they referenced. I remember when the article came out and I was like, "wow those are some impressive returns."

Sad to see that he was stealing. I think we will see more of these cases. There was a ton of very "shady" behavior in the industry. Regulators are only scratching at the surface.

https://www.wsj.com/articles/bitcoins-crashing-that-wont-sto...

> in February 2018, QIN and his fund were profiled in the Wall Street Journal.

Sad that the financial press didn't smell a rat. I suppose if they were that savvy, they'd be making money on the street rather than working as journalists :-/

The good ones can end up working up for wall street firms anyway. Guess the former career of the person who does our media training

Looks like a pretty standard Ponzi scheme, just that he claimed to be making money with some kind of crypto arb.

With unregulated crypto everything old is new again. There's ponzi schemes and pump and dumps everywhere.

"Crypto Fund Manager/Scammer" reads like they are synonyms.

I mean not really? There's plenty of firms who are trading crypto at this point. A lot of tradfi firms have entered the space as well.

The scammers get more creative every day. What I want to know is how an individual can be certain their crypto is safe? And how does one get their money back?

That is my biggest concern with my crypto wallet.

To be totally safe you need to hold in 'cold storage,' totally offline. Unless the feds intercept someone in the act of scamming/stealing crypto and negotiate the crypto back into your hands, it's incredibly unlikely you will ever get your money back.

Buy a ledger https://www.ledger.com/

Interactive Brokers just announced they are going to start trading crypto. If they trade it like stocks, then they hold the crypto for you. This would make it as safe as them holding the stocks in your brokerage account.

What happens if Hypothetically he has those $54mm He was ordered to pay back in a properly hid zcash wallet and he says he just gambled them away / lost the keys?

Hodl and do your time? Come out of the country club prison in a few years and you have a pile of crypto that might be worth something, or nothing.

Except you can never use it. You would be monitored and suddenly having unexplained income would for sure trigger an alert. You would then go to jail for perjury.

He could move to a country with no extradition agreement with the US.

Which of these countries one can easily move to? Most countries have relatively strict immigration policy, and if your plan is to overstay tourist visa, they might just deport you home, despite no extradition agreement.

No one is going to give you advice on how to break the law, but a google search doesn't come up dry on nations full of illegal immigrants that tend to be overlooked unless they commit some grave crime or have a very serious political enemy. It's also worth knowing that strict immigration law and power of the government to enforce it don't really go hand in hand in many shitty 3rd world countries, and in some countries the law really only extends to bigger cities where federal police have power.

My point is that if your plan is to fly under the radar, existence or lack of extradition agreement with US is not really relevant: if you immigrate illegally to escape prosecution, lack of extradition agreement won’t help you much, because if US finds you there and asks for you back, most countries will deport you for breaking immigration laws, without even involving extradition process.

I'm sure he can find somewhere with less scrupulous officials that he could bribe for some official documentation.

He could launder the money, and start over again. Not that hard. People also tend to forget and in 7 years no one will remember him. He could also go to another country after his release or just disappear.

Many cases where people have run away with millions or even billions and are nowhere to be found:

- Ruja Ignatova (OneCoin)

- Jan Marsalek (Wirecard)

- Gerald Cotten and Omar Dhanani (QuadrigaCX) I like this one. It is obvious that Gerald faked his death and that Omar is putting everything on his "dead" friend.

So getting away with something like that is not impossible at all. In fact if you have millions it is quite easy it seems.

> In fact if you have millions it is quite easy it seems

People want to make millions to enjoy them and spend them.

Basically no merchant accepts crypto and the crypto for cash schemes are not equipped to convert huge amount of money.

The only ones who could exchange hundreds of millions or billions in BTC for cash are the cartels or their clients in USA/Europe/Asia.

These people are white collar crime type individuals, if they try to reach them the aforementioned organizations would quite literally mop the floor with them.

If you're 40 years old you may have 15,000 days left. If you're in hiding you're probably not looking to buy property or anything registering your assets. I can't imagine it'd be that difficult to cash out a few hundred a day in some place like Argentina which has lots of non-KYC ATMs and folks exchanging crypto. A few hundred a day is plenty enough to live the rest of your life in luxury, if crypto in whatever stable coin you're able to hold doesn't completely crash.

Remember 10 million is a lot of money, but that's really only like 700 dollars a day for 40 years. Basically enough for a luxury hotel, great meals, and a nice hooker at the end of the night every single day.

Only a luxury hotel, great meals, and a nice hooker each day for the rest of your life.

I am currently in Colombia, and there are many merchants accepting cryptos, including Bitcoin and Bitcoin cash. I guess it is because their currency has lost 50% in value since the beginning of COVID.

On localbitcoins.com you can easily find some one who will buy Bitcoin for cash. I've done this myself and the fee is not very high.

You can also use a Bitcoin ATM but fees are a bit heigh on them and they take your picture just like regular ATMs, so it might be a little bit dangerous.

So to conclude it really depends where you are. I think that for example Medellin is a perfect hide out. And most things here are 4 times cheaper here than in Europe or the U.S.

> QIN, 24, was also sentenced to three years of supervised release, and ordered to forfeit $54,793,532. Geeze, so crime does pay as it is likely he's keeping some of the money he made by using the stolen money to invest in other things such as real estate, or some BTC / ETH he was able to hide from investigators

So he probably has some blue-chip cryptocurrency (BTC, ETH, etc.) hidden away. 24 years + 7 years prison = He will be 31 years old when he is out, and likely a millionaire with that hidden cryptocurrency, at today's prices, and likely a billionaire if cryptocurrency price rises keep similar returns to previous years.

He wins.

[Insert obligatory acknowledgement of my privilege], but I like to think I wouldn't have sold my mid to late 20s for a couple of billion USD, given the choice.

It would make a great "American Greed" episode. He got lucky, 7 years is rather on the low end. Usually for running a ponzi scheme this big in the US you get at least 15 years.

8 years in jail for securities fraud (embezzlement, it seems). Easy to lay against one guy acting by himself.

Maybe if he put the money into cheap mortgages and loans he'd get a government bailout instead. Play the game like the big guys do.

(The point being, you grow to be less accountable)

> Virgil Sigma and VQR

References to Two Sigma and AQR, I guess?

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