JPEX Investigation Blow to Hong Kong’s Positive Crypto Stance Leaving Region Under Pressure

Key Takeaways

• The Hong Kong Securities and Futures Commission accused JPEX of misleading investors.
• Hong Kong authorities arrested 11 people including JPEX staff and crypto influencers.
• Stakeholders say the SFC does not clarify which crypto businesses have received the license to trade.
• Experts say the fall of JPEX may influence the market’s positive approach to digital asset trading.

Walking around Hong Kong, investors and non-investors could not escape JPEX (Japan Exchange) advertisements. The promise of simple investments with nearly guaranteed returns denoted by the company’s slogan “Investment: more than just stocks” acted as a siren call for amateur investors.

The company’s marketing efforts, coupled with the government’s positive approach to crypto regulations seemed like the perfect equation for a successful digital asset investment environment.

However, JPEX turned out to be a typical case of “too good to be true”.

HK Police Arrested JPEX Staff

Hong Kong police have opened an investigation  into alleged fraud and arrested JPEX staff. On top of that, the top regulator in the city, the Securities and Futures Commission accused the company of misleading investors.

As a result, Hong Kong authorities arrested eleven individuals in September, including JPEX staff, staff at crypto stores, and online influencers, with allegations of conspiracy to commit fraud for allegedly operating an unlicensed crypto exchange.

The government was forced to take action against the company following more than 2,300 complaints about the platform, with claims of losses amounting to HK$1.4bn ($179mn).

Unlicensed Crypto Trading

Hong Kong has been making strides towards developing a stable and secure crypto trading environment by implementing regulations and offering new licenses for legitimate crypto institutions.

At the time of publishing this article, only OSL Digital Securities Limited and Hash Blockchain Limited have successfully acquired the license to trade in the city.

However, among the many allegations now arising against JPEX is one concerning lying to investors about having applied for a crypto trading license and charging users exorbitant fees to withdraw funds, as reported  by police and the regulator.

The Hong Kong government has been relatively successful at creating clear and fair crypto regulations, even after the collapse of major crypto institutions – such as FTX and Crypto.com – that were present in the city.

But, now that the city and the regulator face a major scandal under JPEX’s name, it is likely that the government will have to re-evaluate the regulatory framework it has in place.

“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.

Interestingly enough, Hong Kong lawmaker Johnny Ng, a member of the Chinese People’s Political Consultative Conference, China’s top political advisory body disagrees. Ng believes that JPEX is an isolated event and does not reflect on the state of crypto in the city.

JPEX: Blocked

Hong Kong authorities placed JPEX’s website on its alert list of companies it believes are targeting Hong Kong investors without a license as early as July last year, and has consistently warned investors about trading on unlicensed platforms. The authorities have also asked local telecom operators to block JPEX’s website.

The site now cannot be accessed locally via telecom operators including SmarTone, CSL mobile, and Three.

“We deeply regret to inform you of the recent challenges our platform has encountered. The telecommunications service providers in the Hong Kong region, at the request of the Securities and Futures Commission (SFC), have unreasonably blocked our mobile application and official website,” said JPEX in a post .

It also cautioned that not all companies claiming to have applied for licenses may actually have done so.

JPEX Responds

In a series of blog posts , Japan Exchange commented on the news regarding the company’s potential collapse.

“Since September 13, 2023, the 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.

“The SFC has repeatedly denied our platform’s attempts at communication and, now, even ordered the telecom providers to block our website, which undoubtedly exposes their prejudice and unfair treatment towards our platform.”

The company also told  its customers to “temporarily cease depositing new assets and crypto-assets into the platform. The JPEX team will continue to explore more viable solutions with the dedicated task force, aiming to enhance the platform’s revenue and complete adjustments as soon as possible.”