Hong Kong Regulator Seeks To Limit Fallout From JPEX Crypto Scandal

The Hong Kong financial regulator has released a list of the companies that have applied for licences to offer cryptocurrency trading services to retail customers, as authorities seek to limit the damage from a major alleged crypto fraud affecting thousands of customers of the the JPEX trading platform.

The Securities and Futures Commission (SFC) had previously said it would not disclose which companies had applied for licences under its new crypto regime, arguing the public could be led to believe those companies were already compliant with trading rules.

Two companies, OSL Digital Securities Limited and Hash Blockchain Limited, have been granted licences to serve retail customers under crypto rules that came into force on 1 June, which are intended to pave the way for Hong Kong to become a major centre of regulated crypto trading.

The SFC said four other firms had applied for licences: HKVAX, HKBitEx, Hong Kong BGE Limited and Victory Fintech Company Limited.

JPEX scandal

Having applied for a licence does not mean a companies is fully compliant with the SFC’s rules, the regulator’s chief executive Julia Leung told a press conference on Monday.

Leung said the SFC was releasing the information due to public demand.

Two weeks ago the regulator warned that trading platform JPEX had been offering crypto services to retail customers without a licence, and since then police have arrested 11 people involved with the affair, including JPEX employees and influencers suspected to be associated with the firm.

Local actor and singer Julian Cheung Chi-lam and Malaysian actress Jacquelin Ch’ng Se Min, both of whom have appeared in JPEX publicity materials, were questioned by police on Thursday.

The platform has suspended trading and added an exorbitant fee for customers looking to withdraw their funds.

‘Resolute actions’

Hong Kong’s Financial Services and Treasury Bureau said law enforcement agencies would “take resolute actions against unlawful activities irrespective of whether the company is a foreign or local entity”.

Dubai-based JPEX had advertised heavily in public places in Hong Kong, including the heavily trafficked MTR subway system, claiming to be a licensed exchange and that it could offer returns of as high as 20 percent.

As of Saturday some 2,305 users had registered official complaints about JPEX, claiming to represent 1.43 billion Hong Kong dollars ($182m, £149m) in assets, making this the largest alleged fraud of its kind in Hong Kong’s history.

“The JPEX incident highlights the risks of dealing with unregulated [cryptocurrency trading platforms] and the need for proper regulation to maintain market confidence,” the SFC said in a statement, adding that JPEX had never applied for a trading licence.

On Thursday JPEX responded that the regulator had subjected it to “ambiguous guidelines and trumped-up charges” and had disregarded its “voice of reasoned negotiation and communication”.

Sam Bankman-Fried trial

The company said it had “strived to comply” with local regulations but that its efforts had been “dismissed or sidestepped with official rhetoric” by the SFC.

The scandal is likely to further damage confidence in the slumping market for digital assets, already affected by last year’s collapse of several high-profile crypto firms, including exchange FTX.

Former FTX chief executive Sam Bankman-Fried is set to go on trial for his role in the collapse on 3 October.

Bankman-Fried, who had earlier been granted bail, was sent back to prison in August after federal prosecutors accused him of tampering with witnesses by providing the private writings of his former romantic partner Caroline Ellison to the New York Times. Ellison is expected to be a key witness against Bankman-Fried at the trial.