Crypto/Cyber /Fraud Collapses After Raising $1.7 Billion

Promoters engaged in offering frauds often use the language of popular investment products such as crypto assets to give the scheme they are selling an attractive sound or look. That image was then coupled with promises of quick profits to convince the public to put their cash into fraudulent deals. A good example of this approach is a case the Commission filed recently that combines elements of a Ponzi scheme or offering fraud with the language of crypto assets. SEC v. Lee, Civil Action No. 24-cv-00296 (D. Md. Filed January 29, 2024).

Named as defendants in this action are: Xue Samuel Lee, known as Sam Lee, and Brenda Indah Chunga, known as Bitcoin Beautee. Sam Lee is an Australian national who resides in Dubai. He is the co-founder of HyperFund and Blockchain Global Ltd. Bitcoin Beautee resides in Maryland.

Defendants operated a crypto asset, multi-level marketing pyramid and Ponzi scheme that is claimed to have raised over $1.7 billion worldwide through a series of projects called HyperFund. HyperTechGroup, supposedly a blockchain tech conglomerate was founded by Defendant Lee and others in 2020. The sales pitch centered on claims that the firm had a decentralized or DeFi finance ecosystem for crypto asset market participants. Defendants’ goal was to brand and rebrand the schemes.

Over a two-year period, beginning in 2020, Hyper Fund offered what were called Membership packages. Returns were passive, supposedly from crypto mining operations. The operation promised returns of 0.5% to 1% per day. Investors were told that they could triple an investment in 600 days.

The packages were sold as investment contracts. Profits were supposed to come from efforts of Defendants and their affiliates. Defendant Lee was central to this operation. He was cofounder of HyperTech Group, for example, which supposedly was involved in large scale crypto mining. He was also key to the launch of HyperVerse, another of the firms involved here, and claimed to assist with the resurrection of HyperVerse which at one point collapsed.

Bitcoin Beautee, or Defendant Chunga was one of HyperFund’s top promoters and perhaps the face of the U.S. operations. She used on-line seminars and videos to promote the ruses associated with what was actually a multilevel marketing scheme. This included promises to investors of profits by recruiting others to the operation. She was the highest grosing operator for the firm — $5 million in new investments. Overtime she was paid $3.7 million from the operations and investors.

HyperFund was in fact a pyramid and Ponzi scheme. It had no actual source of income except investors. Contrary to claims, HyperFund did not engage in large scale crypto asset mining. The firm did hire an actor to pose as CEO when HyperVerse was launched.

Since there was no real revenue, investor returns were paid with new cash from other investors. Investor capital, the only real source of revenue, was generated by making a series of false statements. In 2022 the firms collapsed. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is in litigation.

In the parallel criminal investigation being conducted by the U.S. Attorney’s Office for the District of Maryland, Defendant Chunge pleaded guilty to conspiracy to commit securities and wire fraud.