The teal-and-white commercials of cryptocurrency group JPEX, or Japan Alternate, had been inescapable in Hong Kong final yr on constructing partitions, taxis and trams. The corporate’s slogan “funding: extra than simply shares”, was marketed for weeks on a large billboard within the centre of the town’s monetary district.
Months later, JPEX’s title is distinguished for a special purpose: Hong Kong police have opened an investigation into alleged fraud and arrested JPEX workers, whereas the town’s regulator, the Securities and Futures Fee, has accused the corporate of deceptive buyers.
The investigation into the change is testing Hong Kong’s dedication to a rigorous however crypto-friendly regime. As soon as dwelling base to main crypto firms together with Sam Bankman-Fried’s FTX and Crypto.com, the territory launched a brand new licensing regime in June, permitting retail buying and selling in an try to cement its prime place as a buying and selling hub for digital belongings.
“I believe the regulators will look again and see that they need to have clamped down on non-licensed gamers on day one, when the licensing regime went reside,” mentioned Carlton Lai, head of blockchain analysis at Daiwa Capital Markets. He added: “The ball is now within the regulator’s court docket to show that their new regime can shield buyers who use licensed platforms.”
In September, police arrested not less than 11 folks, together with JPEX staff, workers at crypto shops and on-line influencers, on suspicion of conspiracy to commit fraud for allegedly working an unlicensed crypto change. Hong Kong authorities mentioned they obtained greater than 2,300 complaints in regards to the platform, with claims of losses totalling as a lot as HK$1.4bn ($179mn).
The allegations in opposition to JPEX embody deceptive buyers by claiming to have utilized for a crypto buying and selling licence and charging customers exorbitant charges to withdraw funds, in keeping with police and the regulator. Police have frozen belongings value greater than HK$60mn, together with HK$44mn in actual property, in reference to the case.
The regulator positioned JPEX’s web site on its alert checklist of firms it believes are concentrating on Hong Kong buyers and not using a licence as early as July final yr, and has constantly warned buyers about buying and selling on unlicensed platforms. It additionally cautioned that not all firms claiming to have utilized for licences may very well have completed so.
The regulator this month issued a press release warning in opposition to JPEX particularly, noting that it had not utilized for a licence within the metropolis nor was it licensed for digital asset buying and selling abroad, regardless of the corporate’s claims to carry permits from regulators in Australia and Dubai. Final yr, Japan’s bourse JPX issued a press release saying it had no ties to JPEX.
JPEX disputes the allegations. “SFC has out of the blue made a sequence of accusations in opposition to our platform’s working mannequin and promotional strategies, which we vehemently resent as they had been made with out investigation or evaluate,” mentioned JPEX in a press release on September 20.
JPEX couldn’t be reached for additional remark. The value for JPC, JPEX’s in-house cryptocurrency, fell 67 per cent in every week as of Friday, in keeping with CoinMarketCap.
Lawmakers have mentioned that the case vindicates the town’s crypto rollout as a result of it demonstrates Hong Kong’s capability to take motion in opposition to non-compliant teams.
“The incident concerning JPEX truly displays the need for a correct regulatory system for digital belongings buying and selling,” mentioned metropolis chief John Lee at a press convention final week.
Hong Kong lawmaker Johnny Ng, a member of the Chinese language Folks’s Political Consultative Convention, China’s prime political advisory physique, mentioned he believed that JPEX was an remoted incident and was unlikely to sluggish the town’s crypto push.
However Foster Yim, a barrister at Liberty Chambers, mentioned the scandal may enhance scrutiny of some functions for crypto buying and selling licences and was prone to sluggish the method down. “I believe the most important takeaway is for most people, particularly the retail buyers, to be actually cautious about this new funding,” he mentioned, referring to the crypto market.
JPEX’s formidable promoting marketing campaign and its co-operation with native influencers gave it an outsize presence within the metropolis.
“They understood very effectively the psyche of the native retail public, they understood very effectively methods to persuade folks to speculate cash with them,” mentioned Donald Day, chief working officer at Hong Kong-based digital asset buying and selling platform VDX and a former regulator on the SFC.
JPEX centered on “the Hong Kong retail investing public with very particular focused messages, together with high-yield, high-return, low-risk”.
One investor in JPEX in her 30s, who put HK$1.2mn on to the platform, mentioned the commercials and the recommendation of workers at an over-the-counter retailer attracted her to the change.
“The SFC has probably not revealed clearly who’s now licensed and who isn’t,” she added. “Many individuals are nonetheless fairly confused.”
The SFC on Monday mentioned it will launch a listing of firms which have utilized for crypto buying and selling licenses within the metropolis, having solely final week mentioned that such a transfer would create “a false sense of safety” for buyers.
JPEX alleged victims have a really slim probability of having the ability to retrieve most of their crypto belongings on the platform due to its obscure possession construction and the dearth of element about which entities personal which belongings, in keeping with Jason Chan, a companion at Howse Williams who specialises in digital belongings.
“Will this knock confidence? Sure, I believe initially, particularly if folks aren’t capable of get well their belongings,” mentioned Jonathan Crompton, Hong Kong-based companion at legislation agency RPC.
“The crypto business totally expects there to be extra FTX-like points popping out of the woodwork as regulatory regimes come into impact and as markets mature.”