Hongkongers urged against trading on unlicensed crypto exchanges as JPEX fraud claims climb to HK$1.2 billion

Hong Kong’s financial watchdog has urged investors to use licensed and regulated cryptocurrency trading platforms amid a major fraud investigation into an unlicensed virtual asset platform involving around HK$1.2 billion in losses.

Eight people – four men and four women aged 22 to 52 – were arrested on Monday over allegations of conspiracy to defraud linked to crypto exchange JPEX, police said in a joint press conference with the Securities and Futures Commission (SFC) on Tuesday. More than 1,600 complaints had been received, with one person suffering a loss of HK$40 million, they added.

Hong Kong Police exhibited the evidence collected from 20 locations related to the JPEX incident, on September 19, 2023. Photo: Kyle Lam/HKFP.

The press briefing came after Chief Executive John Lee said on Tuesday that investors should only trade on regulated virtual asset platforms. The government would step up efforts to “educate investors” about the risk of investing on unlicensed platforms, Lee added, speaking to reporters ahead of his weekly Executive Council meeting.

False and misleading claims by JPEX

The arrests on Monday followed a warning statement by the SFC last week, which identified JPEX as operating without a license and making false or misleading claims suggesting it had applied for a licence.

JPEX has continuously partnered with key opinion leaders and over-the-counter (OTC) operators to actively promote itself to the Hong Kong public as a licensed platform, Elizabeth Wong, director of licensing and head of fintech unit in the SFC, said in the joint press briefing.

JPEX police cryptocurrency scam fraud
Evidence collected from 20 locations related to a police investigation into crypto exchange JPEX, on September 19, 2023. Photo: Kyle Lam/HKFP.

The case was referred to the police for investigation, and complaints were received from investors who were unable to cash out their assets from accounts maintained with the platform, Fanny Kung Hing-fun of the fraud division, commercial crime bureau, said.

Police seized HK$8 million in cash, as well as computers and phones, from 20 locations in Hong Kong during the course of their investigation on Monday. Over HK$15 million worth of assets were also frozen.

JPEX police cryptocurrency evidence money
Cash collected as evidence in an investigation into unlicensed crypto exchange JPEX incident, on September 19, 2023. Photo: Kyle Lam/HKFP.

Among those arrested were owners and staff of OTC shops and social media influencers, including Joseph Lam Chok and YouTuber Chan Hoi-yee, according to local media reports.

“Most victims were inexperienced and ignorant about virtual assets,” Kung said in Cantonese. “Investors must have adequate knowledge of investment products.”

Only 2 licensed platforms operating

Hong Kong introduced a new regulatory regime for virtual asset trading platforms in June, following plans to become a regional digital asset hub.

Under the new law, virtual asset trading platforms operating or actively marketing their services in Hong Kong are required to be licensed and regulated by the SFC. But platforms which existed before the amendment of the law could be given a “one-year” grace period to operate without a license.

So far only two platforms are listed on SFC’s licensed virtual asset trading platforms.

Coingaroo JPEX crypto
A branch of over-the-counter crypto exchange store Coingaroo is closed on September 19, 2023. Photo: Kyle Lam/HKFP.

When asked by a reporter during the joint press conference, Wong said the SFC could not provide the numbers of failed and ongoing license applications.

Wong said that the SFC did not keep statistics on the number of OTC shops in Hong Kong, and that the SFC had no power to regulate them under the current legal framework, adding that the watchdog was aware of their operations.

Branches of OTC shops, including Coingaroo and Coiner, were closed on Tuesday.

In a Chinese-language social media post on Monday night, Coingaroo said it would close until further notice to aid police with their investigation.

YouTube video

Addressing reporters on Tuesday morning, Lee said he was concerned by the incident and warned investors of the risks associated with trading on unlicensed platforms.

“That is why we will be doing more public education for investors to know the risks, how investment operates on such platforms,” Lee said.

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About the Author: Daniel