The two founders of HyperFund have been accused of guaranteeing high returns to investors, despite the fact the company had ‘no real source of revenue’.
The US Securities and Exchange Commission (SEC) has charged the HyperFund co-founders for their involvement in the allegedly fraudulent crypto asset pyramid scheme.
The SEC claims Xue Lee and Brenda Chunga promoted “membership” packages to investors and guaranteed high returns for investors from crypto mining and associations with a Fortune 500 company. The SEC claims HyperFund raised more than $1.7bn from investors worldwide.
But the organisation claims HyperFund was a pyramid scheme that had “no real source of revenue” other than the funds received from investors. HyperFund allegedly began to block investor withdrawals in 2021 according to the US Justice Department, roughly one year before it collapsed completely.
“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,” said SEC enforcement division director Gurbir S Grewal.
“This case illustrates yet again how noncompliance in the crypto space facilitates schemes where promoters capitalise on the promise of easy money, without providing the detailed investor protection disclosures required by the registration provisions of the federal securities laws.”
The US Department of Justice claims HyperFund operated under various names before its collapse, being referred to as HyperTech, HyperCapital, HyperVerse and HyperNation. The department also states the size of HyperFund to be $1.89bn.
The impact on investors was substantial, with one article from The Guardian claiming that the collapse left some “suicidal”.
The department has charged Lee and Chunga with securities fraud and wire fraud, with both of them facing a maximum of five years in prison.
A third individual – Rodney Burton – is facing charges of conspiracy to operate an unlicensed money transmitting business and one charge for operating an unlicensed money transmitting business. He faces a maximum penalty of five years in prison for each count.
Various cryptocurrency businesses have collapsed or been revealed as fraudulent in recent years. One of the biggest examples was FTX, which collapsed towards the end of 2022. After the collapse, FTX founder Sam Bankman-Fried was accused of secretly transferring $10bn of customer funds to his trading company Alameda.
This became one of the biggest fraud cases in history and he was found guilty of seven charges in November 2023. These charges include conspiracy to commit wire and commodities fraud on FTX customers and investors, along with conspiracy to commit money laundering. Some of the listed charges have maximum sentences of 20 years in prison.
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