JPEX probe tests Hong Kong’s crypto-friendly stance

The teal-and-white advertisements of cryptocurrency group JPEX, or Japan Exchange, were inescapable in Hong Kong last year on building walls, taxis and trams. The company’s slogan “investment: more than just stocks”, was advertised for weeks on a massive billboard in the centre of the city’s financial district.

Months later, JPEX’s name is prominent for a different reason: Hong Kong police have opened an investigation into alleged fraud and arrested JPEX staff, while the city’s regulator, the Securities and Futures Commission, has accused the company of misleading investors.

The investigation into the exchange is testing Hong Kong’s commitment to a rigorous but crypto-friendly regime. Once home base to major crypto companies including Sam Bankman-Fried’s FTX and, the territory launched a new licensing regime in June, allowing retail trading in an attempt to cement its top position as a trading hub for digital assets.

“I think the regulators will look back and see that they should have clamped down on non-licensed players on day one, when the licensing regime went live,” said Carlton Lai, head of blockchain research at Daiwa Capital Markets. He added: “The ball is now in the regulator’s court to prove that their new regime can protect investors who use licensed platforms.”

In September, police arrested at least 11 people, including JPEX employees, staff at crypto stores and online influencers, on suspicion of conspiracy to commit fraud for allegedly operating an unlicensed crypto exchange. Hong Kong authorities said they received more than 2,300 complaints about the platform, with claims of losses totalling as much as HK$1.4bn ($179mn).

The allegations against JPEX include misleading investors by claiming to have applied for a crypto trading licence and charging users exorbitant fees to withdraw funds, according to police and the regulator. Police have frozen assets worth more than HK$60mn, including HK$44mn in real estate, in connection with the case.

The regulator placed JPEX’s website on its alert list of companies it believes are targeting Hong Kong investors without a licence as early as July last year, and has consistently warned investors about trading on unlicensed platforms. It also cautioned that not all companies claiming to have applied for licences may actually have done so.

The regulator this month issued a statement warning against JPEX specifically, noting that it had not applied for a licence in the city nor was it licensed for virtual asset trading overseas, despite the company’s claims to hold permits from regulators in Australia and Dubai. Last year, Japan’s bourse JPX issued a statement saying it had no ties to JPEX.

JPEX disputes the allegations. “SFC has suddenly made a series of accusations against our platform’s operating model and promotional methods, which we vehemently resent as they were made without investigation or review,” said JPEX in a statement on September 20.

JPEX could not be reached for further comment. The price for JPC, JPEX’s in-house cryptocurrency, fell 67 per cent in a week as of Friday, according to CoinMarketCap.

Lawmakers have said that the case vindicates the city’s crypto rollout because it demonstrates Hong Kong’s ability to take action against non-compliant groups.

“The incident regarding JPEX actually reflects the necessity for a proper regulatory system for virtual assets trading,” said city leader John Lee at a press conference last week.

Hong Kong lawmaker Johnny Ng, a member of the Chinese People’s Political Consultative Conference, China’s top political advisory body, said he believed that JPEX was an isolated incident and was unlikely to slow the city’s crypto push.

But Foster Yim, a barrister at Liberty Chambers, said the scandal could increase scrutiny of some applications for crypto trading licences and was likely to slow the process down. “I think the biggest takeaway is for the general public, especially the retail investors, to be really cautious about this new investment,” he said, referring to the crypto market.

JPEX’s formidable advertising campaign and its co-operation with local influencers gave it an outsize presence in the city.

“They understood very well the psyche of the local retail public, they understood very well how to convince people to invest money with them,” said Donald Day, chief operating officer at Hong Kong-based digital asset trading platform VDX and a former regulator at the SFC.

JPEX focused on “the Hong Kong retail investing public with very specific targeted messages, including high-yield, high-return, low-risk”.

One investor in JPEX in her 30s, who put HK$1.2mn on to the platform, said the advertisements and the advice of staff at an over-the-counter store attracted her to the exchange.

“The SFC has not really revealed clearly who is now licensed and who isn’t,” she added. “Many people are still quite confused.”

The SFC on Monday said it would release a list of companies that have applied for crypto trading licenses in the city, having only last week said that such a move would create “a false sense of security” for investors.

JPEX alleged victims have a very slim chance of being able to retrieve most of their crypto assets on the platform because of its obscure ownership structure and the lack of detail about which entities own which assets, according to Jason Chan, a partner at Howse Williams who specialises in virtual assets.

“Will this knock confidence? Yes, I think initially, especially if people aren’t able to recover their assets,” said Jonathan Crompton, Hong Kong-based partner at law firm RPC.

“The crypto industry fully expects there to be more FTX-like issues coming out of the woodwork as regulatory regimes come into effect and as markets mature.”

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