Crypto Hedge Fund Manager Gets 37 Months for Tax Evasion After Renouncing US Citizenship

Crypto tax evasion

Justin Ryan Schmidt, founder of cryptocurrency hedge fund Translunar Crypto LP, has been sentenced to 37 months in federal prison for tax evasion after renouncing his US citizenship and hiding millions in offshore accounts.

The Scheme

According to court documents filed in the Western District of Texas, Schmidt managed a crypto-focused hedge fund based in Austin before relocating to the Cayman Islands. Between 2017 and 2019, he failed to report approximately $7 million in income from fund management fees and personal crypto trading profits.

Schmidt renounced his US citizenship in 2019 but continued operating from the Caymans while hiding assets from the IRS. Prosecutors demonstrated that he filed false tax returns, failed to disclose foreign bank accounts, and deliberately structured transactions to avoid reporting requirements.

The Sentencing

US District Judge Lee Yeakel handed down the 37-month sentence on July 27, 2026, along with an order to pay $3.4 million in restitution to the IRS. Schmidt had pleaded guilty to one count of tax evasion in February 2026 under a cooperation agreement.

“Renouncing citizenship does not eliminate tax obligations that accrued while you were a US person,” said Acting Deputy Assistant Attorney General Stuart M. Goldberg. “The Department of Justice will pursue those who attempt to evade their responsibilities by fleeing overseas.”

Wider Implications

The case highlights the IRS’s expanding crypto enforcement capabilities. Schmidt was identified through blockchain analysis tools that traced fund movements across multiple wallets and exchanges. His offshore accounts were flagged through automatic information-sharing agreements between the Cayman Islands and the United States.

For crypto fund managers, the lesson is clear: expatriation does not provide immunity from pre-existing tax liabilities. The IRS’s five-year enforcement window and international cooperation agreements create significant exposure for those with unreported crypto gains.

Industry Warning

The sentencing comes as Congress considers closing the wash sale loophole and the IRS ramps up its crypto audit programme. Prosecutors emphasised that Schmidt’s case should serve as a deterrent to others in the digital asset industry who believe offshore structures provide tax shelter.

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