19th September 2023 – (Hong Kong) Hong Kong Securities and Futures Commission (SFC) issued a statement last Wednesday, the 13th, declaring that the unlicensed operation of the virtual asset trading platform JPEX and referred the case to the police. Yesterday, on the 18th, the Commercial Crime Bureau conducted a large-scale enforcement operation, searching multiple offices and subsequently arresting Joseph Lam Chok, social media influencer Chan Yee and others on charges of conspiracy to defraud.
This morning, on the 19th, Chief Executive John Lee described the incident as fraudulent. In a press conference held at 4pm, the police and SFC provided updates on the case, revealing that a total of four men and four women, including executives and employees of the implicated companies and over-the-counter (OTC) exchange operators, have been arrested so far. As of 10.30pm last night, the police received 1,641 reports (including 1,129 men and 512 women (aged 18 to 49)) related to the incident, involving a total amount of HK$1.187 billion, with the largest individual victim suffering a loss of HK$40 million. The initial losses in previous cases were generally equivalent to the victims’ actual deposited amounts. The SFC stated that all arrested individuals had previously received warning letters from the SFC. The largest case involved HK$40 million, which was the “deposit” amount.
When asked about the suspicions regarding a female actress linked to the case leaving Hong Kong for Malaysia, the police stated that the investigation is still ongoing, and appropriate actions will be taken based on the involvement and roles of the individuals in the case, including extraditing them back to Hong Kong if necessary.
As for the reasons behind the arrests, police stated that they were based on the individuals’ roles and believed participation in luring investors into the scam. If anyone suspects they have been deceived or has questions related to the fraud case, they can seek assistance by calling the police’s Anti-Deception Coordination Centre on the Fraud Prevention Hotline: 18222. The public should remember the fraud prevention tips provided by the police, including: 1) Using the “Fraud Prevention App” launched by the police to check the risk level of suspicious calls, emails, and websites; 2) If suspected of being scammed, visiting nearby police stations or calling 18222.
The police will continue proactive investigations and make arrests at the appropriate time, committed to combating fraud and related money laundering activities. In this case, the police discovered that most victims were inexperienced investors, and they hope to remind the public of important aspects regarding cryptocurrency and virtual asset investments to protect investors. Firstly, do not blindly trust so-called “authorities” such as self-proclaimed investment gurus or masters. Investors should conduct thorough research and gain a deep understanding of the related products and how the virtual assets they are investing in operate. It is crucial to clearly understand the characteristics and risks of the products and carefully evaluate and select suitable products based on investment objectives and risk tolerance. Investment involves risks and returns, influenced by various external factors, so one should not act impulsively out of fear.
Lastly, in this case, the implicated crypto asset platform claimed extremely high returns, which can be considered “too good to be true.” Victims often fell into the scam due to the allure of high returns and ultimately suffered significant losses. Therefore, one should not overlook the risks by pursuing overly ideal returns. Moreover, investors who trade on unregulated platforms and entrust their cryptocurrency private keys to the platform are essentially handing over their assets to others, making them vulnerable to scams and ultimately losing their wealth. Investors should exercise caution when making any investment decisions.
The police also conducted searches at multiple locations, including the residences of the arrested individuals and several OTC exchanges, confiscating approximately HK$8 million in cash, valuable jewellery, and documents related to JPEX. The Commercial Crime Bureau has initiated a wealth investigation into the arrested individuals and related companies, resulting in the freezing of bank balances of approximately HK$15 million and three properties with a combined value of approximately HK$44 million. The possibility of confiscating over HK$60 million in criminal proceeds is also being considered. On 18th September, the Commercial Crime Bureau launched a crackdown operation, successfully dismantling a fraud syndicate related to JPEX asset investment platform. During the operation, the police arrested a total of eight individuals, including four men and four women aged between 22 and 52, on charges of conspiracy to defraud.
JPEX also requests customers to provide the private keys of their cryptocurrencies for safekeeping. An investigation has revealed that JPEX essentially controls the users’ assets. After receiving a warning from the Securities and Futures Commission (SFC), JPEX raised the “withdrawal” fee to $999, while the withdrawal limit remained at $1,000, effectively restricting withdrawals. Subsequently, JPEX removed its webpage and halted all financial transactions.
Police investigations have shown that JPEX attracts investors through advertisements, media, over-the-counter (OTC) exchanges, and key opinion leaders (KOLs). Once registered on the platform, users can exchange different cryptocurrencies or transfer virtual assets from foreign platforms to their JPEX accounts for trading. JPEX also issues a platform token called “JPC,” which cannot be traded on other platforms or used for payments, rendering it highly illiquid and essentially worthless. Users are persuaded to purchase JPC as a form of “pledge” similar to fixed deposits, with claims of high returns upon maturity. JPEX also requires the provision of private keys for the cryptocurrencies, and the investigation has revealed that JPEX essentially controls the users’ assets. Furthermore, following the SFC’s warning statement on 13th 13th September, JPEX increased the withdrawal fee to 999 USDT, effectively limiting withdrawals under the premise of a 1,000 USDT withdrawal limit.
Considering the operational model, promotional methods, and users’ inability to withdraw their virtual assets, the police have reasonable grounds to suspect the involvement of relevant individuals in conspiracy to commit fraud.
The SFC has stated that it has been monitoring the field of crypto assets since 2017, with central virtual asset trading platforms being the most common and highest-risk services for investors. In 2019, the SFC implemented a voluntary framework but still lacks the authority to enforce regulation on crypto asset trading platforms. In July 2022, the SFC included JPEX in its list of unlicensed companies and suspicious websites, issuing over nine reminders in the following year, urging investors to be cautious of risks associated with unlicensed and overseas trading platforms.
In December 2022, the Hong Kong government passed amendments to the Anti-Money Laundering Ordinance, bringing crypto asset trading platform services under the regulatory authority of the SFC. The virtual asset trading platform regime became effective on 1st June of this year, requiring all centrally operated crypto asset trading platforms in Hong Kong to apply for licences and be subject to supervision by the SFC.
