SEC Sues Co-Founder and Promoter of Alleged Crypto-Based Ponzi Scheme

HyperFund, pitched as a “decentralized finance (DeFi) ecosystem” for cryptocurrency asset market participants, was a $1.7 billion “pyramid and Ponzi scheme,” alleged the SEC in a complaint Monday (docket 1:24-cv-00296) in U.S. District Court for Maryland in Baltimore. Defendants in the lawsuit are Xue Samuel Lee, an Australian national residing in Dubai, and Brenda Chunga, who lived in Severna Park, Maryland, during the relevant period, it said.

Lee, “centrally involved” in HyperFund throughout its lifecycle, co-founded The HyperTech Group, “which claimed to be involved in ‘Large Scale Crypto Mining,’ including bitcoin, that promoters asserted was a key revenue source for HyperFund,” the complaint said. Lee later admitted The HyperTech Group, a purported blockchain conglomerate, “was not engaged in large-scale bitcoin mining,” it said.

HyperTech Group operated HyperFund, a series of projects that operated under several names, including HyperVerse and HyperNation, whose “stated goals evolved and utilized various names in an effort to capitalize on the buzz words and zeitgeist of the day,” said the complaint. HyperFund, including its various iterations, “is now defunct,” it said.

From June 2020 through May 2022, HyperFund offered “membership” packages promising “exorbitant passive returns, supposedly derived in part from HyperFund’s crypto asset mining operations,” the complaint said. It promised returns of 0.5%-1% per day “with the prospect of tripling” one’s initial investment “in 600 days,” it said. It also had a “pyramid scheme-like referral system" to reward members for recruiting new investors, the complaint said.

The membership packages were sold as investment contracts “and therefore, securities under the federal securities laws, because investors made an investment of money in a common enterprise with a reasonable expectation of profits” from the efforts of Lee and Chunga or third parties, said the complaint.

Chunga, known online as “Bitcoin Beautee,” was a top promoter of HyperFund and its U.S. “face,” the complaint said. Her recruitment efforts in online seminars and videos included “typical promotional ruses associated with fraudulent multi-level marketing schemes,” including investors’ “supposed ability to make money via daily passive rewards” and also via recruiting others, it said.

Chunga earned the highest level a HyperFund promoter could achieve, requiring at least $5 million in new investments, the complaint said. She received over $3.7 million, "both from the platform and directly from investors” and she used her earnings to “fund extravagant personal expenses and help recruit others into the scheme by showing off the potential wealth to be earned through HyperFund,” the complaint said.

HyperFund had no real source of revenue other than the funds received from investors, the complaint said, and the defendants had “no basis for the promised returns.” HyperFund hired an actor to “pretend to be the new CEO when HyperVerse was launched,” it said. “With no apparent legitimate source of revenues, investor withdrawals were paid with new investor deposits,” it said.

Chunga “ignored red flags about HyperFund and made several misrepresentations to investors to convince them to join,” said the complaint. Lee “knew or recklessly disregarded” that presentations made by promoters like Chunga “included false statements,” and he, too, made statements to investors that were “misleading by omitting material information about the nature of the business,” it said. The HyperFund scheme “collapsed in 2022 when investors were no longer able to make withdrawals,” it said. Defendants bilked investors out of $1.7 billion, it said.

The SEC charges the defendants with violations of the SEC Act, the complaint said. It seeks permanent injunctions against both defendants, enjoining them and all persons in active concert with them, from directly or indirectly violating the federal securities laws alleged in the complaint. It also seeks an order requiring defendants to disgorge all “ill-gotten gains” they received directly or indirectly, with prejudgment interest, plus civil penalties.