Hong Kong police receive 1,600 complaints involving $152 million in alleged JPEX fraud

Hong Kong police have arrested eight people on suspicion of conspiracy to defraud related to cryptocurrency exchange JPEX, the police said in a press briefing today.

As of Monday night local time, the police had received 1,641 complaints surrounding the JPEX case with claims that they failed to withdraw their holdings at the exchange. The amount of assets involved, according to the complaints, amounted to around HK$1.19 billion ($152 million), the police said.

In a police force action dubbed “tieguan” or “iron gate,” the authorities raided 20 locations in the city and seized cash, jewelry, computers and phones worth about HK$8 million. 

For arrested suspects, the police force froze around HK$15 million in their relevant bank accounts, as well as their properties worth about HK$44 million, according to the briefing. The police is also considering confiscation of more than HK$60 million in alleged criminal proceeds.

On Monday, the police arrested Joseph Lam, a crypto influencer and a former lawyer, for his alleged association with JPEX.

JPEX’s trouble

The police’s probe into JPEX came after the Securities and Futures Commission warned last week that crypto influencers and the trading platform have “made false or misleading statements on social media” to suggest that JPEX has applied for a virtual asset trading license in Hong Kong.

In response to the police action, JPEX said on Monday that it received “unfair treatment” from the authorities.

“When other cryptocurrency exchanges announced their entry into the Hong Kong market and began extensive promotion, JPEX was subjected to continuous unfair treatment,” the exchange said. “The SFC sent letters to all our partners, requesting the cessation of cooperation with the platform. On September 13, 2023, the SFC issued a statement against the JPEX cryptocurrency trading platform, causing third-party market makers partnered with the platform to maliciously freeze funds, leading to operational difficulties.”

JPEX said on Sunday that it has suspended some operations and raised withdrawal fees following an ongoing liquidity crisis. 

JPEX ‘got worse’ despite warnings

In today's briefing, Elizabeth Wong, Director of Licensing and Head of Fintech Unit, Intermediaries of the SFC, said that the agency has listed JPEX as an unregistered company and suspicious website since July 2022.

Wong said that after Hong Kong’s crypto retail trading licensing regime took effect in June this year, all trading platforms with no intention to apply for a license must cease their operations in Hong Kong. Still, JPEX did not apply for a license or shut down operations.

Wang added that the SFC warned the public on Aug. 7 about the risks of unlicensed crypto exchanges, but “JPEX went from bad to worse,” so the SFC then, on Sept. 13, named the exchange in a public statement and asked crypto influencers and over-the-counter money exchanges to stop promoting JPEX.

Vivian Lee, a superintendent of police of Hong Kong Police’s commercial crime bureau, said at the briefing that the SFC referred the case to the police last Thursday, and the authorities started to receive complaints about failing to withdraw assets from JPEX. 

Lee added that JPEX’s token JPC cannot be traded on other major exchanges and thus comes with low liquidity. Under the condition that JPEX has a withdrawal limit of 1,000 USDT, the exchange even increased the transaction fee to 999 USDT, effectively restricting withdrawals, according to Lee.

Mak Wai-kwong, an acting chief inspector of the police’s commercial crime bureau, said that the police continue to carry out the probe and may arrest more suspects.

Hong Kong’s web3 ambition

Unlike its neighboring Chinese mainland’s broader crackdown on cryptocurrency trading and mining, Hong Kong has rolled out the welcome mat for crypto firms this year — even going so far as encouraging banks to work with them. In October 2022, Hong Kong authorities released a series of policy statements about cryptocurrencies to strengthen its position as a global financial center. 

In June, Hong Kong officially started its crypto retail trading licensing regime, allowing licensed exchanges to offer retail trading services. The SFC, however, has only granted a relatively small number of licenses so far.

Livio Weng, chief operating officer of HashKey, one of the exchanges that have obtained the retail trading license, told The Block today that the SFC has put out over-100-pages-long guidance for crypto exchanges on all sorts of requirements, including the protection of customer funds.

“We urge the general public [in Hong Kong] to choose licensed financial institutions for their investment activities whenever possible. This can effectively safeguard their asset security, especially for newcomers who lack experience in crypto investments,” Weng said. 

Wang added, “from an industry perspective, the most urgent task at hand is to expedite the licensing process, innovate mechanisms and empower licensed exchanges with competitiveness. This will help prevent the proliferation of subpar entities in the market and restore a healthy market order.”