The Securities and Exchange Commission (SEC) has taken decisive action against Xue Lee (also known as Sam Lee) and Brenda Chunga (known in the crypto community as Bitcoin Beautee), charging them with orchestrating a fraudulent crypto asset pyramid scheme through HyperFund that amassed over $1.7 billion from unsuspecting investors across the globe. This case highlights the perils lurking in the unregulated corners of the crypto market and serves as a sobering reminder of the importance of regulatory compliance and investor vigilance.
From June 2020 to early 2022, Lee and Chunga peddled HyperFund “membership” packages, promising investors lucrative returns from supposed crypto asset mining operations and purported associations with a Fortune 500 company. However, as the SEC’s complaint reveals, these promises were baseless, with HyperFund’s only revenue stream coming from the investments of new participants—a classic hallmark of a pyramid scheme. The inevitable collapse of HyperFund in 2022 left investors unable to withdraw their funds, turning dreams of digital wealth into financial nightmares.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, succinctly captured the essence of the scheme: “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 statement underscores the deceptive practices employed by Lee and Chunga to exploit the burgeoning interest in cryptocurrencies for their gain at the expense of thousands of investors.
The SEC’s legal action against Lee and Chunga seeks not only to hold them accountable for their fraudulent activities but also to prevent them from further endangering the public and the integrity of the financial markets. The complaint filed in the District of Maryland charges the duo for violating the federal securities laws’ anti-fraud and registration provisions. It seeks various sanctions, including permanent injunctive relief, disgorgement of ill-gotten gains, and civil penalties.
In a significant development, Chunga has agreed to settle the charges, consenting to permanent injunctions and agreeing to pay disgorgement and civil penalties, the amounts of which will be determined later. This settlement, pending court approval, marks a pivotal moment in the SEC’s efforts to clean up the crypto space and protect investors from predatory schemes.
Parallel to the SEC’s civil charges, the U.S. Attorney’s Office for the District of Maryland has announced criminal charges against Lee and Chunga, with Chunga pleading guilty to conspiracy to commit securities fraud and wire fraud. This coordinated approach between federal agencies underscores the seriousness with which the U.S. government views fraud in the crypto market and its commitment to prosecuting those who seek to undermine the financial system.
The SEC’s ongoing investigation into the HyperFund scheme, led by the Crypto Assets & Cyber Unit, highlights the agency’s dedication to rooting out fraud in the digital asset space. As the crypto market continues to evolve, this case serves as a stark warning to investors and operators: the allure of quick profits cannot and should not overshadow the fundamental principles of transparency, honesty, and regulatory compliance.
