21st September 2023 – (Hong Kong) The recent unravelling of cryptocurrency trading platform JPEX as an alleged massive fraud has shocked Hong Kong. With over 2,000 investors affected and losses totalling a staggering HK$1.3 billion and more, this marks the city’s biggest financial scam on record. So far, 11 individuals have been arrested as of yesterday, but the masterminds remain at large and victims are unlikely to recover much money. The saga lays bare some uncomfortable truths about Hong Kong society – the thirst for quick riches, lack of risk awareness, regulatory failures, and government negligence. This article analyses the problems behind this case and suggests remedies to prevent recurrence.

Get-rich-quick mentality made people sitting ducks

Hong Kong’s desperation for overnight success made citizens ripe for exploitation by the JPEX scam syndicate. Capitalising on ignorance about cryptocurrency trading, the group used promises of high returns as bait to reel in huge sums. To chase juicy profits, investors readily took on insane risks, even staking their life savings. This greed and gullibility allowed them to be willingly duped.

Indeed, Hong Kongers admire perseverance and hard work but also yearn for “get-rich-quick” shortcuts. Many seek high-return investment schemes, no matter how risky. They see speculation as a god-sent opportunity rather than a gamble. This mindset stems from daily frustrations – sky-high property prices, stagnant pay rises, and work stress. Any avenue for “striking it rich” becomes irresistible.

However, speculative investments typically carry extreme risks of losses. Rational investing requires understanding risks, not just seeking maximum profits. Rooting out the get-rich fixation requires education to foster citizens’ risk awareness and judgement, preventing repetitive mistakes.

Celebrities gave false credibility

Another key factor was celebrities and influencers endorsing JPEX, giving it huge publicity and a veneer of credibility. The platform exploited its brand power to attract public attention and build up its image. But in hindsight, these personalities were not genuine supporters, only shilling for commissions.

Celebrities and influencers can easily sway public sentiment, but that does not mean they can distinguish right from wrong. Their recommendations should not serve as moral compasses. JPEX used them to muddy the waters, preventing citizens from discerning fact from fiction, leading many to be duped.

Going forward, celebrities plugging products must act more responsibly, not make exaggerated claims thoughtlessly. They should conduct proper due diligence to ensure endorsements are for legitimate purposes. Otherwise, they abuse their influence, misguiding the public into unwise decisions.

Regulator lacked efficiency

As a financial watchdog, the Securities and Futures Commission (SFC) should have probed suspicious trading platforms proactively to prevent scams rather than just name and shame belatedly when it was too late.

JPEX was already on the SFC’s high risk list since mid-2022, and repeatedly rebuffed requests for information. But the SFC only explicitly named JPEX for suspected rule-breaking in September this year. In the intervening period JPEX continued recruiting more victims, causing greater public losses. The regulator’s response was clearly too slow.

One reason was inadequate laws governing virtual asset trading. The SFC said unlicensed operations were illegal but couldn’t take tougher action beyond warnings, failing to stop malpractices effectively.

The government should urgently refine legislation to empower the SFC with more authority over virtual asset supervision, e.g. ordering immediate closure of rogue platforms to prevent more citizens from being duped. Also, the SFC needs to improve monitoring efficiency – signs of trouble should trigger swift intervention for investigation rather than dragging on for months.

Government negligence aided scammers

The HK government has been supportive of fostering innovation including exploring virtual assets’ potential. However the JPEX saga shows in supporting innovation, risks must be evaluated prudently to avoid abetting scams.

For instance, the government aims to develop HK into an Asian blockchain hub to stimulate economic growth. But in its enthusiasm, it overlooked inherent risks of virtual assets, focusing only on prospective business opportunities. Its vocal endorsement of blockchain effectively whitewashed JPEX’s legitimacy and aided scammers.

Additionally, the government should avoid getting too cosy with shady entities, inadvertently enhancing their credibility. In the past, two listed firms announced collaborations with JPEX, one being a government-backed company. Though the projects were later cancelled, initially it added credibility to the platform.

Going forward, the HKSAR government must act judiciously when promoting innovation, carefully assessing risks and imposing prudent checks and balances, to avoid repeating mistakes.

The JPEX fraud has dealt a serious blow to Hong Kong’s virtual asset industry. To rebuild trust and status as a global financial hub, the government must plug legal loopholes, empower regulators with more authority, improve efficiency, and act responsibly, or else risk tarnishing the city’s hard-earned reputation.

The real founder and mastermind behind JPEX is probably sipping champagne on a private jet to the Maldives. Picture source: Instagram/jpex_official