US prosecutors and the SEC have charged Xue Lee (aka Sam Lee) and Brenda Chunga (aka Bitcoin Beautee) for their involvement in a fraudulent crypto asset pyramid scheme called HyperVerse that raised more than $1.7 billion from investors worldwide.
They said Lee and Chunga started promoting HyperFund (as it was called at the time) in June 2020 under the guise of creating a decentralized finance ecosystem. Investors began having trouble making withdrawals last February, and the scheme finally collapsed in November 2023, said the SEC in its complaint.
Chunga agreed to settle with the securities regulator, while the charges against Lee will be litigated.
In the criminal proceeding, federal prosecutors charged the pair in an indictment, with Chunga pleading guilty to conspiracy to commit securities fraud and wire fraud and Lee facing the same charge.
Promised returns of 1% a day
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. More specifically (and absurdly), they promised returns of 0.5% to 1% per day (you read that right), claimed falsely they were engaged in large-scale crypto mining, and hired an actor/finfluencer to pretend to be its new CEO after one of its three rebrands. (The company has been called HyperVerse, HyperNation and HyperCapital.)
“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.”
Gurbir Grewal, Director, SEC Enforcement Division
Lee and Chung also said their business would list on the Hon Kong Stock Exchange by 2022 – but it did not – and investors were allegedly wooed to buy memberships with perks such as the ability to buy into initial coin offerings early and below market value.
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.
“The level of alleged fraud here is staggering,” said US Attorney Erek L Barron in the criminal suit. “Whether it’s cryptocurrency fraud, or any other financial frauds, if it sounds too good to be true, it probably is. This office and our law enforcement partners will hold perpetrators accountable for these and other fraud schemes”.
Noncomplaince in the crypto space
“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”.
“With no apparent legitimate source of revenues, investor withdrawals were paid with new investor deposits,” said the SEC. The agency used “pyramid” and “Ponzi scheme” in its compliant, but, as ever, the charges were filed under Section 10(b) of the Exchange Act and its Rule 10b-5, which prohibits material misrepresentations and misleading omissions in connection with the purchase or sale of securities.
