Crypto exchange JPEX facing fraud allegations

Futures exchange – Looking up at a computerized stocks-value board at the Philippine Stock Exchange – CC BY-SA

Hong Kong is facing one of its largest fraud cases as local investors claim to have lost over HK$1 billion (US$128 million) to JPEX, a Dubai-based virtual asset exchange. With over 2,000 customers filing complaints, some of JPEX’s trading operations have shut down and been blocked by the city’s authorities.

Responding to the situation, JPEX said it was working to solve a “liquidity shortage.” This prompted experts to call for additional measures to protect investors from losses.

JPEX case

Hong Kong’s financial regulator, the Securities and Futures Commission (SFC), released a statement on September 13 warning investors that JPEX wasn’t licensed to operate a virtual asset trading platform (VATP) in the city. The SFC also mentioned that there was no pending application from the exchange to operate in Hong Kong.

The SFC released the statement to respond to posts on the PEX website that it was a licensed platform to facilitate trading digital assets and virtual currency. The exchange also falsely claimed that it was licensed by other regulators abroad.

In response to the SFC’s statement, JPEX said it had strived to comply with the local requirement, but it dismissed its efforts.

After the SFC warned the exchange, the platform increased its withdrawal fee to $999 and capped the maximum withdrawal limit at $1,000 to discourage users from withdrawing their assets.

Hong Kong authorities have questioned local influencers who advertised the exchange. They arrested Joseph Lam Chok, a former lawyer who had become an influencer, for his involvement with JPEX during a raid of his workplace. The police also arrested Chan Yee, a YouTube personality with 200,000 subscribers who helped promote JPEX.

In light of these events, Hong Kong chief executive John Lee has said that proper investor education is needed to better inform people about the risks with virtual assets.

Lee told reporters that regulators would “monitor the situation very closely and ensure that investors are sufficiently protected,” and that “this incident highlights the importance that when investors want to invest in virtual assets, then they must invest on platforms that are licensed.”

JPEX’s move

JPEX has left its Taipei office and announced disruptions to its trading operations following investigations by the SFC. In a blog post, the exchange blamed the SFC for influencing its partners to freeze funds.

“When other cryptocurrency exchanges announced their entry into the Hong Kong market and began extensive promotion, JPEX was subjected to continuous unfair treatment,” the exchange said.

“The SFC sent letters to all our partners, requesting the cessation of cooperation with the platform. On September 13, 2023, the SFC issued a statement against the JPEX cryptocurrency trading platform, causing third-party market makers partnered with the platform to maliciously freeze funds, leading to operational difficulties.”

JPEX also announced that all transactions on its Earn Trading platform would be delisted on September 18, 2023.

In a statement released on September 21, JPEX suggested that there was little the authorities could do against the exchange, as its team members were spread out “in unknown places around the world.” JPEX also claimed that it had never adopted a “physical corporate structure,” deeming it an obstacle to promoting cryptocurrency globally.

As a result of the investigations, JPEX has decided to transform into a DAO structure, hoping that the decision will help it get back on track as soon as possible. According to the statement, JPEX will continue to operate normally no matter what happens.