Australian businessman Sam Lee has been charged with conspiracy to commit fraud in the United States for his alleged role in operating the HyperVerse cryptocurrency investment schemes, which were described in court documents as a “pyramid and Ponzi scheme” that allegedly defrauded investors out of US$1.89 billion. ($2.86 billion Australian dollars).
US Attorney for the District of Maryland Eric L. Barron said the Justice Department “will hold perpetrators accountable for these and other fraud schemes,” with Lee facing up to five years in prison if convicted.
“The level of fraud alleged here is staggering,” Baron said.
The criminal complaint filed in Maryland District Court accuses Lee of conspiracy to commit securities and wire fraud, while a separate civil complaint filed by the U.S. Securities Commission accuses Lee of fraud and the unregistered sale of securities in violation of U.S. securities law. Represent.
The charges against Lee, once dubbed Australia's “Bitcoin Crown Prince”, come alongside the indictment and arrest of another American promoter of the HyperVerse and HyperFund cryptocurrency schemes, Brenda Chunga, who pleaded guilty to conspiracy to commit securities and wire fraud. . For her role.
The criminal complaint alleges that Lee and his co-conspirators operated the Hyper schemes to “unjustly enrich themselves” by inducing investors to participate in the scheme.
“It was an additional part of the conspiracy that Lee and his co-conspirators knowingly devised and intended to devise a scheme and ruse to defraud and obtain money and property by false and fraudulent pretenses, representations, and promises,” the complaint alleges.
If convicted, Lee is ordered to “dispose of all ill-gotten gains” he obtained directly or indirectly as a result of the schemes.
Court documents refer to the cryptocurrency schemes run by the HyperTech group collectively as HyperFund but the funds operate under different names, including HyperCapital, HyperFund, HyperVerse and HyperNation.
Li was chairman of HyperTech Group, which was co-founded with his business partner, Ryan Xu. Shaw was not named in court documents.
The accusations come after a Guardian Australia investigation revealed details of the scheme's operation, including widespread investor losses, the use of a fake CEO to launch the HyperVerse scheme and HyperVerse's links to collapsed Australian cryptocurrency company Blockchain Global, of which Lee was a director.
The SEC's complaint, filed against both Lee and Chunga, alleges that their case “involves a multi-level, global crypto-asset marketing pyramid and Ponzi scheme that raised more than $1.7 billion from victims worldwide, including millions from U.S. investors.” . .
The criminal complaint estimates the losses were higher, alleging that HyperFund was “a global securities fraud and wire fraud scheme that obtained approximately $1.89 billion from victim investors worldwide.”
SEC Enforcement Director Gurbir S. Grewal alleges that Lee and Chunga lured investors with the lure of profits from mining crypto assets — “but the only thing HyperFund took out of it was investors’ pockets.”
“This case once again demonstrates how non-compliance in the cryptocurrency space facilitates schemes where promoters profit from 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 details Lee's alleged role in the operation of the HyperFund schemes, alleging that he “was centrally involved in the HyperFund throughout its life cycle.”
“With respect to information and beliefs, Lee was not only a co-founder of HyperFund, but maintained control of HyperFund throughout its existence,” the SEC alleges.
It alleges that from approximately June 2020 to approximately November 2022, Lee and Chunga sold HyperFund memberships, “made materially false and misleading statements about investments, and knowingly or recklessly participated in a scheme to defraud investors — defrauding investors of more than $1.7 billion.” . – By luring them with the false promise of guaranteed and high returns from investments in securities.
“Defendants knew, or were reckless in not knowing, that their statements about HyperFund's returns and profits were materially false and misleading. Defendants also knew, or were reckless in not knowing, that they were operating a scheme to defraud investors in HyperFund securities.” .
The SEC also alleges that Lee played an “instrumental role in the distribution of HyperFund memberships”, with his business background and links to Australian companies used to attract investors to the scheme.
“Lee's appearance and speech during the HyperVerse launch was a securities pitch. Lee's reputation and public persona in crypto assets deceived investors into believing that HyperFund was not a scam because it was backed by a well-known crypto asset entrepreneur.
“These details were used to add legitimacy and credibility to the scheme, and to convince investors that not only were their funds safe, but that the money they expected to receive was coming from purportedly legitimate sources.”
Court documents allege that HyperFund operated as a Ponzi scheme, where money from later investors was used to pay off early investors.
“HyperFund had no real source of income other than funds received from investors, and Defendants had no basis for the promised returns,” the documents allege.
“Lee, as one of the founders of HyperFund, knew, or was reckless in not knowing, that HyperFund did not generate sufficient revenues to be able to expect to meet its payment obligations to investors, other than income generated from sales of new HyperFund memberships, and was thus a Ponzi scheme.”
The HyperFund bounty system, which was used to bring in new investors, was “nothing more than a pyramid scheme recruiting tool,” court documents allege.
Investors in HyperFund and its subsequent iterations bought “membership” packages with the promise of 0.5% daily rewards and a 300% return over 600 days. The SEC complaint alleges that investors were told that these “exorbitant negative returns” were derived from HyperFund’s crypto asset mining operations, “but these claims were false.”
Lee, who launched HyperFund in mid-2020 and appeared at HyperVerse's 2021 launch presentation, allegedly allowed this false representation to continue “despite knowing that HyperFund promoters' representations about large-scale mining of cryptocurrency assets were false.”
The court documents also point to HyperFund's claims of not offering an investment product through the sale of memberships, applying the so-called Howey test which finds that an investment contract exists when there is an investment of funds in a common enterprise with a reasonable expectation of profit to be obtained from the efforts of others.
The case file shows that Lee, who has lived in Dubai since 2021, has not yet appointed a defense lawyer. Guardian Australia has contacted Lee for comment. He previously denied that HyperVerse was a scam, and claimed that he was only involved in the money management and technology side of the company.
The charges against Lee and Chunga are the result of a joint investigation conducted by the New York-based Department of Homeland Security's El Dorado Task Force and the Internal Revenue Service's Criminal Investigation Unit.
The El Dorado Task Force is the oldest anti-money laundering task force in the United States, with more than 200 members targeting complex financial crimes, including cybercrime and cryptocurrency.
Despite Lee being an Australian citizen and Australian companies playing a pivotal role in Hyper Group's promotion of investor schemes, it has escaped the scrutiny of Australia's corporate watchdog, the Australian Securities and Investments Commission.
Since Guardian Australia's investigation into the HyperVerse schemes, Asic has said it will evaluate a liquidator's report into Blockchain Global, which collapsed in 2021 owing its creditors A$58 million.
