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SEC and DOJ Charge Individuals in $1.9 Billion Cryptocurrency Fraud

Unveiling the HyperFund Scheme: DOJ’s Crackdown on Cryptocurrency Fraud

In January, the U.S. Department of Justice (DOJ) announced charges against two people and the guilty plea of a third person involving a massive $1.89 billion cryptocurrency Ponzi scheme, known as HyperFund.

Cryptocurrency fraud is a top enforcement priority for the Government.

Key Players and Charges: From Co-Founders to Promoters

In the Hyperfund matter, Sam Lee, an Australian citizen residing in Dubai, United Arab Emirates, allegedly co-founded HyperFund and was charged with conspiracy to commit securities fraud and wire fraud.  Rodney Burton, of Miami, Florida and Brenda Chunga, of Severna Park, Maryland, were promoters of HyperFund.  Burton was charged with conspiracy to operate an unlicensed money transmitting business.  Lee and Burton face prison time if convicted.  Chunga pleaded guilty to conspiracy to commit securities fraud and wire fraud and awaits sentencing.

The Mechanics of a Ponzi: HyperFund’s Promises vs. Reality

The HyperFund fraud described in DOJ’s indictment follows a familiar pattern typical of Ponzi schemes, where unscrupulous owners and promoters promise investors returns that are too good to be true or guaranteed returns. The owners then abscond with investors’ money once they can no longer keep paying out these unrealistic returns to investors, and the scheme collapses.

The DOJ alleged that Lee and his counterparts sold investment contracts through HyperFund’s online investment platform. HyperFund’s promotional materials allegedly promised investors who purchased HyperFund “memberships” that they would receive between 0.5% to 1% daily until the company either doubled or tripled the investor’s initial investment. HyperFund claimed that it generated revenue for investors from cryptocurrency mining, when in reality these mining operations did not exist, according to DOJ. Around July 2021, HyperFund allegedly started blocking investors’ requests to withdraw their funds from the investment, and the scheme collapsed.

“The level of alleged fraud here is staggering,” said U.S. Attorney Erek L. Barron for the District of Maryland. “Whether it’s cryptocurrency fraud, or any other financial frauds, if it sounds too good to be true, it probably is.”

SEC’s Stance and Actions Against HyperFund Fraud

The Securities and Exchange Commission (SEC) also announced a related civil action against Lee and Chunga for allegedly raising more than $1.7 billion from investors worldwide in the Hyperfund fraud.  The SEC has identified cryptocurrency fraud as one of its top enforcement priorities in 2024.

The SEC’s Hyperfund Complaint alleged that Lee and Chunga knew or were reckless in not knowing that Hyperfund was a pyramid scheme.  According to the Complaint, Hyperfund had no source of revenue other than money from investors.

The SEC’s Complaint reveals more details about how the promotors carried out the alleged fraud. According to the Complaint, this included using a tactic typically used by multi-level marketing schemes, whereby investors were offered greater rewards if they convinced other investors to join. The SEC’s Complaint also alleges that HyperFund hired an actor to play the supposed new CEO of the company when it launched a “HyperVerse” product. Such manipulative actions are just a few of the many red flags described in the SEC’s Complaint.

The Role of Whistleblowers in Uncovering Crypto Fraud

Like other types of fraud, cryptocurrency fraud can be difficult to detect.  Whistleblowers can help uncover cryptocurrency fraud and may be entitled to a financial reward and confidentiality under federal whistleblower programs. These programs include the SEC and CFTC reward programs, and the AML whistleblower program.

Whistleblower awards can range anywhere between 10 and 30 percent of an SEC enforcement action that recovers at least $1 million, and awards can include a share of related enforcement actions.  Phillips and Cohen has won 21 awards for clients under the Dodd-Frank whistleblower reward programs – more than any other law firm.

If you have information about cryptocurrency fraud and would like to talk to an experienced whistleblower attorney, contact us here.


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