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In a significant development, the Department of Justice (DOJ) recently announced criminal charges against two individuals. It secured a guilty plea from a third person involved in a global crypto Ponzi fraud scheme known as HyperFund, among other aliases.
The Securities and Exchange Commission (SEC) also filed a related civil action, charging two individuals involved in the alleged crypto pyramid scheme, which collapsed in 2022.
DOJ And SEC Expose $1.8 Billion Crypto Pyramid Scheme
Acting Assistant Attorney General Nicole Argentieri of the DOJ’s Criminal Division stated that the three defendants falsely claimed that investors in HyperFund would receive “substantial returns paid from cryptocurrency mining operations, which did not exist.” US Attorney for Maryland Erek Barron described the level of alleged fraud in this case as staggering.
On the other hand, according to the SEC complaint, Xue Lee (Sam Lee) and Brenda Chunga (Bitcoin Beautee) have been charged for their roles in the fraudulent crypto asset pyramid scheme, which the SEC claims raised over $1.7 billion from investors worldwide.
The SEC’s complaint alleges that from June 2020 through early 2022, Lee and Chunga promoted HyperFund “membership” packages, promising investors high returns, including from HyperFund’s purported crypto asset mining operations and partnerships with a Fortune 500 company.
However, the complaint asserts that Lee and Chunga were aware or “recklessly” disregarded the fact that HyperFund was a pyramid scheme and lacked any real revenue source apart from investors’ funds.
In 2022, the scheme collapsed, leaving investors unable to make withdrawals. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated on the matter:
As alleged in our complaint, Lee and Chunga attracted investors with the allure of profits from crypto asset mining, but the only thing that HyperFund mined was its investors’ pockets. This case illustrates yet again how noncompliance in the crypto space facilitates schemes where promoters capitalize on the promise of easy money, without providing the detailed investor protection disclosures required by the registration provisions of the federal securities laws
Criminal Charges Filed Against HyperFund Founders
The SEC’s complaint, filed in federal district court in the District of Maryland, accuses Lee and Chunga of violating anti-fraud and registration provisions of federal securities laws.
The complaint seeks permanent injunctive relief, conduct-based injunctions against participation in multi-level marketing or crypto asset offerings, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties.
Chunga has agreed to settle the charges, which include being permanently enjoined from future violations and paying disgorgement and civil penalties. The settlement is subject to court approval, while the charges against Lee will be prosecuted.
Parallel to the SEC’s action, the US Attorney’s Office for the District of Maryland also announced criminal charges against Lee and Chunga. Chunga has pleaded guilty to conspiracy to commit securities fraud and wire fraud.
Featured image from Shutterstock, chart from TradingView.com
