Hong Kong, a global financial hub and gateway to China, has been rocked by a massive cryptocurrency scandal involving JPEX. The Dubai-based cryptocurrency exchange allegedly defrauded thousands of investors of more than $160 million. The case exposed regulatory gaps in Hong Kong's nascent cryptocurrency industry, a lack of investor protection, and the risks of relying on social media influencers to promote unlicensed platforms.
JPEX, which stands for Japan Exchange, claims to be the world’s first cryptocurrency exchange to offer dividends to its users. It has also partnered with major institutions such as HSBC, Standard Chartered, and Alibaba. It lured investors with promises of high returns and low fees, and employed aggressive marketing strategies such as billboards, online ads, and influencer endorsements.
Influencers promoting JPEX include Joseph Lam, a barrister-turned-insurance salesman who calls himself Hong Kong’s “troll king,” and Chan Yee, a YouTube celebrity with 200,000 subscribers. They show followers how bitcoin profits can help them buy houses and cars, and encourage them to sign up for JPEX using referral codes.
However, things started to go wrong in September 2023, when JPEX announced that it was facing a “liquidity shortage” and suspended withdrawals. Many investors were unable to access their funds or contact the platform’s customer service. Some also discovered that JPEX had been operating without a license from the Hong Kong Securities and Futures Commission (SFC), which regulates virtual asset trading platforms.
The SFC revealed that it had sent a warning letter to JPEX in June 2023, asking it to cease its activities in Hong Kong or apply for a license. However, JPEX ignored the letter and continued to operate illegally. The SFC also stated that it had no jurisdiction over JPEX's business registered in Dubai.
Hong Kong police launched an investigation into JPEX after receiving complaints from more than 2,000 investors claiming to have lost HK$1.3 billion (US$166 million). Police arrested Lin, Chen and 11 others on suspicion of fraud, money laundering and conspiracy to defraud. Police also seized computers, mobile phones, bank cards and documents from the suspects' residences.
The case sparked public outrage and raised questions about Hong Kong's regulatory framework for crypto assets. Hong Kong has been trying to position itself as a global innovation and technology hub, especially after the introduction of the National Security Law in 2020, which eroded Hong Kong's autonomy and freedoms. In November 2020, the SFC announced a new licensing regime for virtual asset trading platforms to strengthen investor protection and combat money laundering.
The regime will not take effect until June 2023, leaving a gap of more than six months for unregulated platforms such as JPEX. In addition, the regime only covers platforms that trade at least one security token, a crypto asset that represents ownership or rights to an underlying asset or business. Platforms that only trade non-security tokens (such as Bitcoin or Ethereum) do not need to obtain a license from the SFC.
This means that a large part of the cryptocurrency market in Hong Kong is still unregulated. According to CoinMarketCap, there are currently more than 11,000 crypto assets in circulation, with a total market value of more than $2 trillion. Many of these assets are highly volatile and speculative; some may be fraudulent or illegal.
The JPEX case also highlights the dangers of trusting social media influencers who endorse crypto products or platforms without proper disclosure or due diligence. Influencers may have ulterior motives or conflicts of interest in promoting certain platforms or tokens. They may also lack the expertise or credibility to provide accurate or reliable information about the risks and rewards of investing in crypto assets.
Investors should be wary of any platform or product that promises unrealistic returns or guarantees without disclosing the risks involved. They should also do their own research and verify the credentials and reputation of any platform or product they intend to use. They should also check whether the platform or product is licensed or regulated by any authority in Hong Kong or elsewhere.
The JPEX case has also drawn attention to Dubai as a cryptocurrency haven for shady operators. Dubai, part of the United Arab Emirates (UAE), has long attracted cryptocurrency businesses with its low taxes, lax regulations and friendly attitude.
Dubai has no specific laws or powers to regulate crypto assets, nor does it require crypto platforms to be licensed or registered with any authority. Dubai also does not have an extradition treaty with Hong Kong, making it difficult for authorities to pursue JPEX or its founders.
However, Dubai’s crypto-friendly stance could come at the cost of its reputation and security. Dubai could attract scammers, hackers and terrorists who use crypto assets to evade sanctions, launder money or finance illegal activities. #JPEX #香港
