Hong Kong arrests 6 people in fraud probes linked to halted cryptocurrency platform JPEX, in a case that may ‘involve HK$1 billion in assets’
- Sources say ex-lawyer turned internet figure and YouTuber Chan Yee was detained on suspicion of conspiracy to defraud, with ‘about HK$1 billion’ involved
- Securities watchdog earlier accused trading platform JPEX of relying on misleading statements from social media influencers ‘who are often paid promoters’
Hong Kong police arrested six people in connection to the halted cryptocurrency trading platform JPEX, exposing the vulnerabilities of the city’s open economy and free-for-all internet in a scandal that could rack up as much as HK$1 billion in losses.
Police arrested four men and two women – including the influencers Joseph Lam Chok and Chan Wing-yee – today after receiving 1,408 complaints alleging fraud at JPEX, the force said. The amount involved was estimated to be “about HK$1 billion (US$128 million)”.
The case, coming three months after Hong Kong’s “virtual asset” regulations came into effect and opened the way for retail investors to dabble in cryptocurrencies, “is a positive step for Hong Kong’s ambitions to be a virtual asset hub,” said Jonathan Crompton, a partner at RPC in Hong Kong.
“It shows that the SFC is prepared to act against companies that do not comply with the new virtual asset trading platform regulations,” Crompton said. “In essence, this proves that the badge of being regulated in Hong Kong means something.”
Crypto exchange JPEX is misleading investors, Hong Kong’s SFC says
Yet, JPEX advertised extensively in Hong Kong’s subway stations, public transport, and even featured local celebrities on its billboards.
“JPEX put large mass media advertisements in public areas in Hong Kong. That is as retail as you could get in advertising,” said Pádraig Walsh, a partner at Tanner De Witt Solicitors in Hong Kong. “That is what the SFC was concerned about at the end of the day. The SFC was concerned about the ripple effect if they did not start cracking down. Would this become an accepted practice?”
JPEX-Crypto Platform to suspend trades on Monday amid Hong Kong probe
The retrieval of clients’ assets could be difficult as it is not immediately clear what business presence JPEX actually has in Hong Kong, Walsh said.
According to a company search, JPEX is a HK$1 company registered in the city as JPEX Technical Support Company, with an address at a high-rise building in Lai Chi Kok. Its sole director is listed as Kwok Ho-lun, while its corporate secretary is Jason Chan Hiu-ho. Kwok and Chan could not be reached for comments.
“If the SFC does not have direct jurisdiction over assets and business on the ground here in Hong Kong, then it would be a more complicated path to restoring any client assets,” Walsh said.
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The commercial crime bureau of the city police raided Lam’s office at the Entertainment Building in Central at around 11am. At around 12.30pm, plain-clothes officers escorted the ex-lawyer, who is now a well-known internet figure, out of the building to an unmarked police car.
Police also seized boxes of evidence, including a plastic bag containing banknotes, from his office. Lam was being detained at the Central Police Station along with the second influencer Chan on suspicion of the conspiracy to defraud, sources said.
Officers also raided the office of an over-the-counter (OTC) virtual asset money changer in Tsim Sha Tsui East. The case is under investigation, and more arrests are possible, the police said.
JPEX relied on misleading statements made by key opinion leaders (KOLs) “who are often paid promoters,” the SFC said.
“KOLs and OTC shops have made false or misleading statements on social media to suggest that JPEX has applied for a VATP [virtual trading platform] licence in Hong Kong, either independently or in partnership with a Hong Kong listed company, when in fact no entity in the JPEX group has submitted any application,” the commission said. “The SFC has notified the relevant KOLs and OTC shops of the SFC’s suspicions and concerns, and requested them to cease promoting JPEX and its related services and products.”
On Saturday, police said they had received 83 complaints related to JPEX, involving about HK$34 million in virtual assets. Victims said they were unable to withdraw their investments without exorbitant fees – as much as 99 per cent of their principle amount – even before the platform halted transactions.
Complaints flooded in on Monday, with 1,408 cases tallied at 2pm while the amount involved shot to HK$1 billion, the police said.
JPEX was “disappointed” with what it called the SFC’s “unfair means to disrupt the market,” and pledged to help investors with their withdrawals, according to a statement issued late Monday night.
JPEX is “an individual incident” and “law enforcement agencies and regulators should do their job so that investor confidence will not be impacted,” said Johnny Ng Kit-chong, a member of the city’s Legislative Council.
Ng spoke during a media briefing by two people who claimed to have each lost HK$100,000 to JPEX, wearing masks and using audio synthesizers to disguise their voices. Ng said he is in contact with 30 of the estimated 8,000 victims of JPEX’s fraudulent advertising, with more than HK$100 million in combined losses, according to a post on his Facebook page.
