Hong Kong, a global financial center and gateway to China, has been rocked by a massive crypto scandal involving JPEX. This Dubai-based cryptocurrency exchange allegedly defrauded thousands of investors of more than $160 million. The case has exposed regulatory loopholes, the lack of investor protection in Hong Kong’s emerging crypto industry and the risks of relying on social media influencers to promote unlicensed platforms.
JPEX, which stands for Japan Exchange, claimed to be the first crypto exchange in the world to offer dividends to its users. The company also boasted partnerships with major institutions such as HSBC, Standard Chartered and Alibaba. It lured investors with promises of high returns and low costs and used aggressive marketing strategies such as billboards, online ads and influencer endorsements.
Among the influencers promoting JPEX were Joseph Lam, a lawyer turned insurance salesman who called himself Hong Kong’s “Trolling King,” and Chan Yee, a YouTube personality with 200,000 subscribers. They showed their followers how Bitcoin profits could help them buy houses and cars and encouraged them to sign up for JPEX using their referral codes.
However, things started to unravel in September 2023, when JPEX announced it was facing a “liquidity shortage” and suspended withdrawals. Many investors were unable to access their funds or contact the platform’s customer service. Some also discovered that JPEX was operating without a license from Hong Kong’s Securities and Futures Commission (SFC), which regulates virtual asset trading platforms.
The SFC revealed that it had sent a warning letter to JPEX in June 2023, asking it to cease operations in Hong Kong or apply for a license. However, JPEX ignored the letter and continued to operate illegally. The SFC also said it had no jurisdiction over JPEX’s operations in Dubai, where it was registered.
Hong Kong police launched an investigation into JPEX after receiving complaints from more than 2,000 investors claiming to have lost HK$1.3 billion ($166 million). Police arrested 11 people, including Lam and Chan, on suspicion of fraud, money laundering and conspiracy to defraud. The police also seized computers, mobile phones, bank cards and documents from the suspects’ properties.
The case has sparked public outrage and raised questions about Hong Kong’s regulatory framework for crypto assets. Hong Kong has sought to position itself as a global hub for innovation and technology, especially after the introduction of the national security law in 2020, which has eroded the country’s autonomy and freedoms. In November 2020, the SFC announced a new licensing regime for virtual asset trading platforms to enhance investor protection and combat money laundering.
The regime did not come into effect until June 2023, leaving a gap of more than six months for unregulated platforms such as JPEX. Furthermore, the regime only covers platforms that trade at least one security token, a type of crypto asset that represents ownership or rights to an underlying asset or company. Platforms that only trade non-security tokens, such as Bitcoin or Ethereum, do not need to obtain a license from the SFC.
This means that in Hong Kong there is still a large part of the crypto market unregulated and unsupervised. According to CoinMarketCapthere are more than 11,000 crypto assets in circulation, with a total market capitalization of more than $2 trillion. Many of these assets are highly volatile and speculative; some may be fraudulent or illegal.
The JPEX case also highlights the dangers of trusting social media influencers who endorse crypto products or platforms without proper disclosure or due diligence. Influencers may have ulterior motives or conflicts of interest when promoting certain platforms or tokens. They may also lack the expertise or credibility to provide accurate or reliable information about the risks and rewards of investing in crypto assets.
Investors should be wary of platforms or products that promise unrealistic returns or guarantees without disclosing the risks. They should also do their own research and verify the credentials and reputation of any platform or product they plan to use. They should also check whether the platform or product is licensed or regulated by an authority in Hong Kong or elsewhere.
The JPEX case has also drawn attention to Dubai’s role as a crypto haven for shady operators. Dubai, part of the United Arab Emirates (UAE), attracts crypto companies with its low taxes, lax regulations and friendly attitude.
Dubai has no specific law or authority to regulate crypto assets and does not require crypto platforms to obtain a license or register with any authority. Dubai also has no extradition treaty with Hong Kong, making it difficult for authorities to prosecute JPEX or its founders.
However, Dubai’s crypto-friendly stance may come at the expense of the country’s reputation and security. Dubai could become a magnet for scammers, hackers and terrorists using crypto assets to evade sanctions, launder money or finance illegal activities.
Dubai may also face pressure from other countries or international organizations to tighten crypto industry oversight and compliance. Dubai may have to balance its ambition to become a global leader in innovation and technology with its responsibility to prevent and combat financial crimes and risks.
The JPEX case is neither the first nor the last crypto scandal that Hong Kong will face. This is not only a wake-up call for investors, but also for regulators and policymakers. As the crypto industry grows and evolves, new challenges and opportunities will arise for Hong Kong and its stakeholders. Hong Kong should learn from the JPEX case and take proactive and preventive measures to safeguard its interests and values.
Hong Kong needs to improve its regulatory framework, enforcement of the crypto industry, and its public education and awareness campaigns. Hong Kong should cooperate and coordinate with other jurisdictions and agencies to combat cross-border crypto crimes and risks.
The JPEX case is a crypto scandal that is upending Hong Kong’s reputation as a global financial center and gateway to China. It exposes the regulatory loopholes and lack of investor protection in Hong Kong’s crypto industry, as well as the risks of relying on social media influencers to promote unlicensed platforms.
Hong Kong should strengthen its supervision and enforcement of the crypto industry and its public education and awareness campaigns. Hong Kong must also strike a balance between promoting and regulating the crypto industry and protecting and empowering its investors. Only then can Hong Kong maintain its lead and competitiveness on the world stage.
