Introduction
The Securities and Exchange Commission (SEC) has taken legal action against Xue Lee (aka Sam Lee) and Brenda Chunga (aka Bitcoin Beautee) for their roles in the fraudulent crypto asset pyramid scheme, known as HyperFund, which managed to accumulate over $1.7 billion from investors worldwide. The SEC’s charges shed light on the deceptive practices used by Lee and Chunga, who promoted HyperFund “membership” packages with promises of high returns, including revenue from HyperFund’s purported crypto asset mining operations and associations with a Fortune 500 company.
The Rise and Fall of HyperFund
From June 2020 to early 2022, Lee and Chunga lured investors with enticing offers related to HyperFund, leading them to believe in substantial profits from crypto asset mining and affiliations with a renowned Fortune 500 corporation. However, as per the SEC’s allegations, Lee and Chunga were either fully aware or recklessly disregarded the fact that HyperFund was nothing more than a pyramid scheme. The scheme’s primary source of income came from funds contributed by investors. In 2022, the HyperFund pyramid scheme finally crumbled, leaving investors unable to withdraw their funds.
The SEC’s Stand
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the deceptive nature of the scheme: “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.” This case serves as a stark reminder of the challenges in the crypto space, where noncompliance can enable schemes that exploit the allure of easy money, all while sidestepping the vital investor protection disclosures mandated by federal securities laws.
Legal Action and Charges
The SEC has filed a complaint in federal district court in the District of Maryland, accusing Lee and Chunga of violating anti-fraud and registration provisions outlined in federal securities laws. The complaint seeks various remedies, including permanent injunctive relief, conduct-based injunctions prohibiting participation in multi-level marketing or crypto asset offerings, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties.
Brenda Chunga’s Settlement
Remarkably, Brenda Chunga has chosen to settle the charges, agreeing to be permanently enjoined from engaging in future violations of the charged provisions and specific other activities. Furthermore, she has consented to pay disgorgement and civil penalties, with the exact amounts to be determined by the court at a later date, pending court approval. On the other hand, the charges against Xue Lee are set to be litigated.
Parallel Criminal Charges
Simultaneously, the U.S. Attorney’s Office for the District of Maryland has announced criminal charges against Lee and Chunga. Notably, Brenda Chunga has pleaded guilty to conspiracy to commit securities fraud and wire fraud.
Conclusion
The SEC’s action against Xue Lee and Brenda Chunga serves as a stark warning against fraudulent crypto schemes that prey on unsuspecting investors. It underscores the importance of regulatory oversight in the cryptocurrency space, where enforcement agencies are actively working to protect investors and maintain the integrity of financial markets. As the case progresses, the outcome will undoubtedly have significant implications for the crypto industry and its participants.
