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SEC Charges $1.7 Billion Crypto Pyramid Scheme Architects With Fraud

SEC Charges $1.7 Billion Crypto Pyramid Scheme Architects With Fraud. Securities and Exchange Commission, SEC, Crypto, Pyramid Scheme, Fraud, HyperFund, disciplinary

The Securities and Exchange Commission charged Xue Lee (aka Sam Lee) and Brenda Chunga (aka Bitcoin Beautee) for their involvement in a fraudulent crypto asset pyramid scheme known as “HyperFund” that raised more than $1.7 billion from investors worldwide.

The HyperTech Group, a purported blockchain technology conglomerate founded by Lee and others launched HyperFund in June 2020. At the outset, according to the SEC investigation and complaint, HyperFund claimed to be a project dedicated to creating a so-called “decentralized finance ecosystem” for crypto asset market participants. Over time, the project’s stated goals evolved and utilized various names in an effort to capitalize on the buzz words and zeitgeist of the day, including rebranding itself as “HyperVerse” and, later, as “HyperNation,” a version of the project which featured an individual in a mask discussing creating a decentralized government to escape the societal bonds of inequality and injustice through blockchain technology. HyperFund, including its subsequent rebranded iterations, is now defunct.

According to the SEC’s complaint, from June 2020 through early 2022, Lee and Chunga promoted HyperFund “membership” packages, which they claimed guaranteed investors high returns, including from HyperFund’s supposed crypto asset mining operations and associations with a Fortune 500 company. As the complaint alleges, however, Lee and Chunga knew or were reckless in not knowing that HyperFund was a pyramid scheme and had no real source of revenue other than funds received from investors. In 2022, the HyperFund scheme collapsed, and investors were no longer able to make withdrawals.

“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 Gurbir S. Grewal, director of the SEC’s Division of Enforcement. “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.”

The SEC’s complaint, filed in federal district court in the District of Maryland, charges Lee and Chunga with violating the antifraud and registration provisions of the federal securities laws. The complaint seeks permanent injunctive relief, conduct-based injunctions preventing the defendants from participating in multilevel marketing or crypto asset offerings, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties. Chunga agreed to settle the charges, to be permanently enjoined from future violations of the charged provisions and certain other activity, and to pay disgorgement and civil penalties in amounts to be determined by the court at a future date. The settlement is subject to court approval. The charges against Lee will be litigated.

In a parallel action, the U.S. Attorney’s Office for the District of Maryland announced criminal charges against Lee and Chunga. Chunga pleaded guilty to conspiracy to commit securities fraud and wire fraud.

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