HyperVerse scam founder Xue ‘Sam’ Lee hit with criminal, civil fraud charges

U.S. authorities have filed criminal and civil charges against Sam Lee, the alleged leader of the HyperTech scam known as HyperVerse that stole nearly $2 billion dollars from its victims.

On January 29, criminal wire fraud and securities fraud charges were unsealed against Australian national Xue ‘Sam’ Lee, the alleged mastermind behind the HyperTech family of scams. The charges, originally filed on January 25 in the U.S. District Court of Maryland, accuse Lee of orchestrating the scheme that took $1.89 billion from its ‘investors’ between June 2020 and November 2022.

On the same day, the U.S. Securities and Exchange Commission (SEC) filed a civil complaint against Lee and promoter Brenda’ Bitcoin Beautee’ Chunga, accusing the pair of engaging in fraud and offering unregistered securities to U.S. citizens. Chunga was also named Lee’s co-conspirator in the Department of Justice’s (DoJ) criminal complaint.

Lee is believed to be hiding out in Dubai. Maryland resident Chunga pleaded guilty to a single criminal count of conspiracy to commit securities fraud and wire fraud. She faces a maximum five-year sentence when she appears before a judge on May 1. Chunga also reached a settlement with the SEC that will see her pay disgorgement and civil penalties in amounts to be determined by a court at an unspecified future date.

The charges follow the arrest earlier this month of Florida resident Rodney’ Bitcoin Rodney’ Burton, a prominent promoter of the HyperTech scams. Burton faces one count of conspiracy to operate an unlicensed money-transmitting business and one count of operating an unlicensed money-transmitting business, each of which carries a potential five-year sentence.

HyperTech and its various alter egos—HyperCash, HyperCapital, HyperFund, HyperVerse, HyperNation—promised investors returns of up to 300% over 600 days. The returns were supposed to be generated by various of bogus revenue streams, including ‘crypto’ mining pools that didn’t actually exist and digital asset exchanges that didn’t do much business.

In reality, HyperTech was a simple Ponzi scheme that required investors to recruit other investors/victims whose contributions would be used to pay off earlier investors. The scams rebranded as each previous incarnation reached its inevitable dead-end, with the whole shebang collapsing for good in mid-2023.

In a statement, U.S. Attorney for the District of Maryland Erek L. Barron said, “The level of alleged fraud here is staggering.” SEC enforcement director Gurbir Grewal said the case “illustrates yet again how noncompliance in the crypto space facilitates schemes where promoters capitalize on the promise of easy money, without providing the detailed investor protection disclosures required by the registration provisions of the federal securities laws.”

Criminal complaint

The criminal charges against Lee say his operations—which we’ll collectively refer to as HyperTech—convinced investors to invest through materially false and fraudulent pretenses, representations, and promises regarding the returns on those investments while concealing the fact that the investors’ funds were being misappropriated for Lee’s personal benefit.

The grift began in June 2020 with HyperTech’s formation. Shortly thereafter, Chunga appeared in a video presentation pitching customers to the “world’s most sustainable passive rewards program.” Investors were told they’d receive “between 0.5% to 1% daily in passive rewards until the company doubles your membership value.” This offer was subsequently upgraded to triple the investors’ original stake.

Investors were offered a variety of price points for buying into the scheme, starting at $300 and topping out at $10,000. A slide from the presentation attempts to shame investors by saying: “If $300 is too high a figure to become a member at HyperCommunity, it’s time to re-evaluate the current system you are using to make money.”

Like most Ponzis, HyperTech started by paying its promised rewards, but some investors started finding their withdrawal requests blocked as early as July 2021.

Shortly before that halt, a video was released in which HyperTech’s‘ compliance director’ explained that “HyperFund takes compliance rules extremely important [sic].” This individual appeared under a fake name, cited a fake 10-year history of compliance experience, and neglected to inform investors that he had a prior federal conviction for wire fraud.

Civil complaint

The SEC complaint dives deeper into Chunga’s role in the HyperTech scam, calling her “arguably the face of its United States presence.” Within six months of her involvement, Chunga had reached “the highest level a HyperTech promoter could achieve” by raising at least $5 million from other investors.

Chunga personally collected over $3.7 million as her share of the ill-gotten proceeds, which she used in part on “extravagant personal expenses” that helped promote the alleged benefits of investing in the scheme. These included jewelry, clothing, a BMW, a $1.2 million home in Maryland, and a $1.1 million condo in Dubai.

In one presentation, Chunga tried to assuage investors’ concerns that HyperTech’s founders could “just take our money and disappear. Well, ladies and gents, they have more to lose than to gain. They’re all over CNN. They have publicly traded companies, they are on Amazon Prime, their faces are everywhere.” In another presentation, Chunga cited Lee’s existing wealth as proof that HyperTech was “not a company that needs your money.”

HyperTech sold memberships to investors using the Tether (USDT) stablecoin. Investors who chose a specific membership level were sent links through which they could use fiat cash to purchase the equivalent value in USDT, which would then be transferred to the scammers. The use of USDT appears intended to distance the scammers from the traditional banking system and its pesky system of checks and balances.

But Chunga also accepted personal checks and wire transfers from tech-phobic investors, charging a fee of between 1%-3% to convert the cash to the HyperCommunity’s ‘HyperUnits.’ Chunga reportedly earned around $1.1 million via these intermediary services.

Members were incentivized to bring in additional capital from other members through a system of tiered reward levels ranging from 1%-15% of the sums brought in. Chunga encouraged investors to reinvest their rewards instead of withdrawing them, allegedly to further boost their ultimate returns.

If a member insisted on withdrawing, they encountered a Byzantine system that required first converting their accumulated HyperUnits to Molecular Future (MOF), an Ethereum-based token issued by a different HyperTech founder. These MOF tokens then had to be sent to the HOO exchange (run by that other founder) and converted to yet another digital asset before being able to exchange them for fiat. MOF was basically illiquid, so its real-world value was virtually nonexistent.

In June 2022, the HOO exchange stopped processing withdrawals, then halted functioning altogether that November, effectively dooming HyperTech investors’ efforts to retrieve their cash. And yet Lee continued his efforts to keep the grift going by pitching yet another relaunch, declaring in a July 2023 video that these efforts were “for realz this time!”

The SEC complaint also addresses the Guardian’s recent revelation that HyperVerse’s purported CEO, Stephen Reece Lewis, was, in reality, a U.K. actor named Steve Harrison, who was hired to read HyperVerse-promoting scripts to video cameras. The complaint says co-founder Lee “knew, or was reckless in not knowing,” that Harrison was an actor and had nothing to do with HyperTech’s operations.

Better late than never?

Nowhere in the SEC or DoJ complaints will you find the name Zijing ‘Ryan’ Xu, a Chinese national who co-founded HyperTech with Sam Lee. Xu, whose whereabouts are currently unknown, also co-founded Blockchain Global (BGL) with Lee. BGL was the company behind ACX.io, a failed Melbourne-based digital asset exchange. In 2021, BGL went into voluntary administration, leaving ACX customers and creditors owed around $58 million.

The Guardian previously published reports expressing disappointment that, despite HyperTech’s Australian roots and scam warnings from regulators in other countries, the Australian Securities & Investments Commission (ASIC) failed to warn local residents of the dangers.

Worse, the BGL liquidation report prepared by the Pitcher Partners accounting firm recommended that ASIC investigate Xu, Lee, and director Liang ‘Allan’ Guo for possible breaches of director’s duties, breaches of trust, and unreasonable director-related transactions. (Guo reportedly had no involvement in HyperTech.)

Again, ASIC declined to take any action, saying it would only take action “where there is sufficient evidence and where our action will result in a greater regulatory impact in the market and benefit the general public more broadly.’

Last week, The Guardian reported that ASIC had evidently re-read its mission statement and was now “assessing reports from the liquidator in relation to BGL.”

The Guardian also reported that Pitcher Partners had uncovered potential links between BGL and an entity affiliated with the HyperTech scheme. The links stem from two debt transactions totaling $500,000 involving BGL’s main bank account on August 5, 2019.

Pitcher Partners suggested that, while it’s unclear what purpose these transactions were actually used for, there is a link between this account and HCash, a digital token that served the same rewards-conversion function as MOF but for earlier versions of the HyperTech grift.

On a document labeled ‘HyperTech group organizational chart,’ the HCash Foundation is listed alongside BGL and Collinstar Capital. In a 2019 post, HCash’s official Telegram group announced it was “allied with the HyperTech group.”

The human cost

The damage done by scams like HyperTech isn’t purely financial. Some investors sincerely believed the lies they were fed and enlisted friends and family to invest in the scheme. When the walls come down, these individuals are often viewed as Judas goats by their former friends, who are understandably angry after being led to financial slaughter.

Last week, Guardian journalist Sarah Martin told CBC Radio that “people have been really rocked by this … I’ve heard stories of people who, you know, lost their superannuation savings, lost money they’d set aside for surgery, people whose livelihoods have really been shattered by this. There’s been claims of loss of life … it really has been like a wrecking ball for so many people. And so people want justice. They really want someone to be held to account.”

An early-2023 call between Lee and some Nepali members of the HyperVerse’ community’ shows Lee dancing as fast as he can, declaring (with a straight face) that he was never actually part of HyperVerse and that the problem is all the fault of the people at “corporate.”

Some members on the call tried hard to convey to Lee the carnage that this scam had wrought. They warned of instances of “self-harm” and people who borrowed money to invest in HyperVerse becoming “suicidal” after losing everything.

In response, Lee effectively shrugs, saying, “A lot of people have been misled in many other industries. This is just the newest industry to be misled in. And the way we prevent this from happening again is we need to increase everybody’s literacy around the technology and how these opportunities operate.”

Substitute ‘predatory scams’ for ‘opportunities,’ and you’ve got something there, Sam. As for how we here at CoinGeek would resolve this problem…

Watch: BSV provides solutions for cybersecurity & fraud