The U.S. Securities and Exchange Commission (SEC) is continuing its enforcement actions in the crypto sector. The agency announced charges against Xue Lee (also known as Sam Lee), an Australian citizen who lives in Dubai, who is accused of co-founding crypto MLM scheme HyperFund, as well as two promoters, Rodney Burton of Miami, and Brenda Chunga of Severna Park, Maryland. The U.S. Department of Justice (DOJ) announced criminal charges against these three individuals.
The Case Background
The HyperFund scheme was also doing business as HyperTech, HyperCapital, HyperVerse, and HyperNation. According to court documents, from June 2020 to November 2022, Xue Lee and his co-conspirators allegedly offered and sold investment contracts to the public through HyperFund’s online investment platform. HyperFund’s promotional materials allegedly made various false claims, including that investors who purchased HyperFund “memberships” would receive between 0.5% to 1% daily in passive rewards until the company either doubled or tripled the investor’s initial investment.
To convince investors that HyperFund could make such payments, HyperFund allegedly claimed that its payments would be disbursed in part from its revenues from large-scale crypto mining operations, when in truth, HyperFund did not have such operations. Beginning in at least July 2021, HyperFund allegedly began to block investor withdrawals.
The U.S. charges contend that HyperFund was essentially a pyramid scheme with no genuine revenue sources other than investor funds. The scheme eventually collapsed in 2022, leaving investors unable to withdraw their funds.
The Charges
Both Lee and Chunga face charges for violating anti-fraud and registration provisions of federal securities laws. While legal proceedings against Lee will continue, Chunga has agreed to settle the charges. Her settlement includes permanent injunctions against future violations of specific legal provisions, involvement in multi-level marketing, or crypto asset offerings, along with financial penalties to be determined later.
If convicted, Xue Lee faces a maximum sentence of five years in federal prison for conspiracy to commit securities fraud and wire fraud. Lee hasn’t been seen in public since fleeing to Dubai. His current whereabouts and status remain unknown.
Rodney Burton has been arrested on a criminal complaint charging him with one count of conspiracy to operate an unlicensed money transmitting business and one count of operating an unlicensed money transmitting business. Burton was ordered to be detained. If convicted, he also faces a maximum penalty of five years in prison on each of those counts.
Brenda Chunga, a/k/a “Bitcoin Beautee,”pleaded guilty to conspiracy to commit securities fraud and wire fraud, for her role as a promoter of HyperFund. Chunga admitted that she personally received at least $3 million in fraud proceeds from her participation in the conspiracy. As detailed in her plea agreement, Chunga will be required to pay restitution in the full amount of the victims’ losses, which the parties agree is at least $3 million, but could be significantly higher. Chunga faces a maximum penalty of five years in prison.
