Hounax scam: Hongkongers who lost HK$148 million to cryptocurrency platform say watchdog warning came too late
- Some victims of Hounax scam say watchdog issued warning over investment platform too late, as lawmakers call for shake-up to end ‘unregulated vacuum’
- ‘These scams are nothing new, but the [Hounax case’s] planning and execution were done so meticulously,’ one victim says after losing HK$100,000
Some Hong Kong residents caught up in an alleged HK$148 million (US$19 million) cryptocurrency scam said the securities watchdog’s warning came too late as lawmakers on Monday urged the government to close a legal loophole that enabled unlicensed platforms to trade within an “unregulated vacuum”.
But the Securities and Futures Commission (SFC) dismissed suggestions the incident involving cryptocurrency platform Hounax reflected serious shortcomings in the existing monitoring system, adding it needed time to investigate.
One of the victims said he had lowered his guard because Hounax appeared to have been recognised by international authorities. The man, surnamed Ng, 50, said the scam was well-executed and had been months in the making.
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According to police, as of 4pm on Monday they had received reports from 145 people who said they had lost about HK$148 million. A 69-year-old retired woman allegedly suffered a loss of HK$12 million.
The SFC said it received the first complaint against Hounax in late September. It then launched an investigation the following month and added Hounax to its alert list of suspicious virtual asset trading platforms on November 1.
The watchdog said it had so far received 18 complaints concerning the platform, with investment amounts ranging from HK$12,000 to HK$10 million. The cases had also been filed with police, it added.
But a spokesman said: “The platform is unregulated and not licensed with the SFC. As such, the SFC does not have the power to cease its operation.”
SFC chief executive Julia Leung Fung-yee later said that this did not mean major problems existed in the regulatory mechanism.
“It does not mean that the monitoring work has significant shortcomings that need to be addressed,” Leung said, adding the regulator had been checking social media on whether there were unlicensed trading platforms illegally running promotions or marketing campaigns.
Ng, a maintenance worker, said he was cheated out of HK$150,000 and reported his case to police on November 14 but had not heard anything back since. He only learned about other cases involving the platform upon finding a related Facebook group almost a week later.
He said he first got involved with the scammers who posed as “financial experts” on Facebook in April, and subsequently joined their WhatsApp chat group that provided investment advice on stocks and allowed the fraudsters to build trust.
By August, the stocks were not performing well and the “experts” in the WhatsApp group recommended trading cryptocurrencies on the Hounax platform.
Ng said, looking back, he realised that most of those in the group of 50-60 people were in on the swindle, with a handful of members being cheated.
The accomplices would all say they could retrieve cash from the platform and even showed their account transactions to create an illusion of legitimacy.
“They were using methods like that, to make sure you couldn’t tell who was who, so you couldn’t verify information,” he said.
Ng said the SFC’s move on November 1 came too late – as a lot of customers’ money was already tied up in a special deal that the platform had in late September to bar them from making withdrawals until November 12.
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In light of an about HK$1.6 billion financial scandal surrounding another cryptocurrency platform, JPEX, Ng initially took a very cautious approach to Hounax, depositing a smaller amount of HK$20,000.
He let his guard down after successfully retrieving his money from the platform in September, finding out Hounax was listed in a business registry in Canada, and that a search of Hong Kong police’s CyberDefender website – which flags online scams – did not yield any results.
“I only dared to invest because of these checks. Who knew it was still a scam after so many checks,” he said.
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Another victim, an accountant surnamed Wong, told the Post that the official warning had come too late and she had ended up losing about HK$100,000 in the scam.
Wong, who is in her forties, said she was lured in by a scammer-run YouTube channel offering financial advice and had joined a WhatsApp chat group in June after following a link left on the video-sharing platform.
The scammers then shared quizzes on the group and established trust with the accountant by awarding her HK$1,000 in prize money the first two times around. After two more wins, she was convinced to set up a Hounax account to collect the cash.
Wong said she had let her guard down after discovering the company was registered as a “money services business” in the US and Canada, adding that she had managed to make two successful withdrawals before mid-September.
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But she felt suspicious about some details of the business’ operational model, including the serious miscalculation of handling fees and scammers offering to loan her large sums of money in August and September.
She refused to borrow the money and left her account inactive, only reporting the case to police on November 13 after the platform refused to let her withdraw any money, she said.
“The warning to the public was too late in this whole incident,” she said. “These scams are nothing new, but the planning and execution were done so meticulously.”
Meanwhile, lawmakers Doreen Kong Yuk-foon and Johnny Ng Kit-chong slammed the SCF’s efforts to warn the public as insufficient.
“There are hundreds of firms listed as ‘suspicious’ by the SFC,” Kong said. “They can’t say ‘we have already informed you of that’.
“It’s like saying ‘best of luck’ to the public. Their actions are very passive now.”
The lawmaker also highlighted loopholes in the existing regulatory mechanism that prevented the watchdog from responding proactively to unlicensed platforms, since the latter were not banned and existed in a legal grey zone.
“In a developed society such as Hong Kong, these things should not be happening,” she added. “The SFC cannot hide behind such an excuse.”
Kong said that the Telecommunications Ordinance could be used to ban sites deemed suspicious to protect the public, urging the SFC and police to work closely.
“These [scamming] platforms use telecommunications networks, too. They are also regulated by similar ordinances in developed countries such as the UK and Australia,” Kong said.
“Hong Kong lacks not the capacity to solve this issue but the will. If our regulatory and enforcement bodies have the will to do so, why are scams rife?”
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Ng, who also serves as convenor for an anti-deception alliance, said the watchdog could have issued a warning far sooner.
On Saturday, police said fraudsters had provided quick returns on victims’ investments to build trust, but the numbers were meaningless and made up by the scammers, who had already transferred the deposited money.
The force said that, when victims tried to withdraw their money later, the platform’s “investment managers” would reject the requests using different excuses or charge them a “verification” fee of up to 80 per cent of their initial funds, claiming it was a requirement of an international anti-money-laundering organisation.
The platform, which claimed to be run by a Singaporean company, started operating early this year and appeared to target Hong Kong investors, according to police.
