Hong Kong Launches Investigation into Cryptocurrency Exchange with Influencer Ties

The Hong Kong regulatory authorities have initiated an inquiry into a cryptocurrency exchange associated with influential individuals in the cryptocurrency space. The investigation revolves around the exchange known as JPEX.

Hong Kong authorities have launched a probe into the cryptocurrency trading platform known as JPEX, following allegations of fraud that have led to approximately HK$1.3 billion (around $166 million) in losses for investors. The investigation comes after complaints were filed by a substantial group of approximately 2,000 individuals, and it involves the arrest of eleven individuals, including prominent influencers.

This case is making headlines as it could potentially become one of Hong Kong’s most significant fraud investigations, and it also serves as a test for the city’s new financial regulations. Hong Kong has been positioning itself as a global hub for virtual assets, and this incident raises important questions about the oversight and regulation of cryptocurrency platforms operating within its jurisdiction.

Last week, Hong Kong’s Securities and Futures Commission (SFC) revealed that JPEX, a Dubai-based cryptocurrency exchange, had been operating without the necessary license for virtual asset trading. In response, JPEX claimed that it had made efforts to comply with the local requirements, which came into effect in June of the same year. However, the Commission dismissed or sidestepped these efforts with official rhetoric.

Many of the complainants in this case are inexperienced investors who were enticed with promises of high returns. JPEX used influential figures and extensively advertised on Hong Kong’s MTR train system using large billboards to attract investors.

Local television footage showed the police escorting one of the arrested influencers, Joseph Lam, from his residence. Joseph Lam, a former barrister turned insurance salesman, is known for describing himself on Instagram as Hong Kong’s “Trolling King.” Through his posts, he showcased how Bitcoin profits could enable individuals to purchase real estate and enhance their social influence. Chan Yee, a YouTube personality with 200,000 subscribers, was also among those arrested.

In response to the arrests, some trading operations on JPEX have been halted in Hong Kong, and there have been indications that web access to the platform has been restricted. Additionally, JPEX has reported a “liquidity shortage,” leading to complaints from users who are unable to withdraw their funds.

Hong Kong Chief Executive John Lee emphasized the need for strict monitoring of the situation to ensure investor protection. He stressed that investors must choose licensed platforms when dealing with virtual assets. Hong Kong has required virtual asset trading platforms to obtain licenses from the SFC since the beginning of June this year, as part of its efforts to assert its position as a global financial center.

This incident highlights the challenges associated with cryptocurrencies, which often lack regulation and oversight by central banks. Despite these concerns, many consumers are drawn to peer-to-peer digital currencies due to their appeal.

Hong Kong, a major financial hub in Asia, has been actively positioning itself as a gateway for investors to the mainland since its handover from British to Chinese rule in 1997. The city is now seeking to establish itself as a hub for emerging internet technologies, including cryptocurrency trading, within the framework of Web 3.0. This is particularly significant as China banned cryptocurrencies on the mainland in late 2021, citing concerns about asset safety.

The introduction of licensing requirements for platforms like JPEX aims to enhance accountability and provide a mechanism for compensation in case of disputes, according to Francis Fong, honorary president of the Hong Kong Information Technology Federation. However, some digital economy experts believe that existing laws may not be sufficient to prevent illegal operations by virtual asset platforms or protect investors from losses.

On social media platforms like Facebook, distressed investors have formed groups with names like “JPEX Sufferers.” One group member mentioned being attracted to JPEX due to the ubiquity of its MTR advertisements.

JPEX, headquartered in Dubai, claims to be licensed to facilitate digital asset trading in the United States, Canada, and Australia. The “About Us” section of its website displays blurry images that appear to be licenses from these three countries. JPEX was founded in 2020, reporting that it had handled $2 billion worth of assets and aimed to become one of the world’s top five virtual asset exchanges.

However, when the South China Morning Post investigated JPEX’s address in Hong Kong, it discovered that the space was occupied by a co-working firm named Coffee. The staff at the co-working space claimed to be unaware of JPEX, and Hong Kong police had previously checked the address.

JPEX also maintains an office in Taiwan, where it employed Taiwanese celebrity Nine Chen as its influencer and once sponsored a boxing match on the island. Following the revelation that JPEX was operating without a license in Hong Kong, Nine Chen expressed his inability to contact relevant individuals at the company and stated his willingness to cooperate with any investigations.