Original - Odaily
Author - 0xAyA
JPEX Exchange, which claims to create a new foundation for Hong Kongs Web3, is currently in trouble - as of press time, more than 2,000 people have called the police claiming to have been victimized in cases involving the JPEX Exchange, involving an amount of HK$1.3 billion. This case has also been criticized by some The Hong Kong media called it the largest financial fraud case in history. Among the 11 suspects who have been arrested, there are not only relevant personnel of the exchange, but also KOLs who had previously cheered for it.
On the first day of Token 2049, this exchange still existed in the booth area and was active as a regulated and compliant exchange. Not long after, it was involved in farce such as Withdrawal of 1,000 USDT, handling fee of 999 USDT , JPEX was investigated by the police and even named by the Chief Executive. What happened behind the scenes?
Timeline organization
On September 13, the Hong Kong Securities and Futures Commission issued a warning statement on Unregulated Virtual Asset Trading Platforms on its official website. The content is as follows:
The Securities and Futures Commission has noticed that a virtual asset trading platform called JPEX actively promotes the platform to the Hong Kong public through social media influencers and over-the-counter virtual asset currency exchangers (over-the-counter currency exchange shops). Services and Products.
The SFC would like to clarify that none of the entities under the JPEX Group are licensed by the SFC, and have not applied for a license from the SFC to operate a virtual asset trading platform in Hong Kong.
The SFC also observed that there are many suspicious aspects in the methods used by JPEX and those who actively promote JPEX to the Hong Kong public and exchange shops:
(a) JPEX states on its website that it is a licensed and recognized digital asset and virtual currency platform. It claimed on its website and in local editorial advertisements that it had obtained licenses from certain overseas regulators to operate virtual asset trading platforms, which was actually untrue.
(b)JPEX offers extremely high returns on some of its products.
(c) The Securities and Futures Commission received complaints from retail investors and noted media reports that some retail investors were unable to withdraw virtual assets from accounts opened at JPEX or found that their account balances were reduced and changed.
(d) Some of the products offered by JPEX appear to be arrangements involving virtual assets, such as virtual asset “deposits,” “savings” or “income” that are not permitted under the Securities Regulatory Commission’s virtual asset trading platform regulatory regime.
(e) JPEX advertised on its website and local editorial advertisements that it had entered into a business cooperation with a Hong Kong listed company and received investment from the company. In fact, the cooperation had been terminated and the listed company had not actually made any invest.
(f) Internet celebrities and over-the-counter currency exchange shops made false or misleading statements on social media, stating that JPEX had independently or jointly with a Hong Kong listed company applied for a virtual asset trading platform license in Hong Kong. In fact, None of the entities under the JPEX Group has submitted any license application for a virtual asset trading platform to the China Securities Regulatory Commission. The China Securities Regulatory Commission has notified relevant internet celebrities and over-the-counter exchange shops of its suspicions and concerns, and requested them to stop promoting JPEX and its related services and products.
The China Securities Regulatory Commission has notified relevant internet celebrities and over-the-counter exchange shops of its suspicions and concerns, and requested them to stop promoting JPEX and its related services and products.
Just one hour after the China Securities Regulatory Commission issued this announcement, JPEX Exchange stopped its withdrawal business and subsequently issued a counterattack on its official website, stating that it intentionally and plannedly applied for a license and pointed out that the China Securities Regulatory Commissions This behavior actually puts pressure on the cryptocurrency industry, and also reflects its unwillingness to truly implement the policy of Web 3.0, which conflicts with the SAR governments decision to build Hong Kongs image as a Web 3.0 city.
In the early morning of the 14th, some JPEX exchange users began to report on social platforms that their withdrawal limit on the exchange was limited to 1,000 USDT, and the handling fee was as high as 999 USDT.
The next day, some enthusiastic people said that the JPEX booth that was still promoting token 2049 the day before was now empty. As for issues related to withdrawals from the exchange, the China Securities Regulatory Commission said that it would be transferred to the police for follow-up. Since then, JPEX issued a special announcement on the official website, stating that the platform will gradually adjust the currency withdrawal fees based on the response from the China Securities Regulatory Commission, and will gradually open the currency withdrawal limit. If users have urgent currency withdrawal needs, they can fill out the form to apply for priority withdrawal, and Very considerately, we have reduced the withdrawal fee to 980 USDT.
The data analysis company Bitrace tweeted that the relevant addresses of the JPEX exchange have been seriously contaminated by funds. One of its hot wallet recharge addresses has inflowed more than 190 million USDT at risk in the past 20 months, and the two hot wallets with the highest number of transfers have The addresses are all high-risk addresses, and their marked risk types are money laundering and black and gray assets.
The incident further escalated. Blockbuster said that JPEX in Taipei, which claims to spend sky-high rents in a single month to become the core base of Asia’s blockchain, is now empty, and the “Asia Blockchain Building” hanging on its facade The poster with the famous KOL Chen Lingjiu has still not been taken down. Later, he responded and said: After learning about the JPEX incident, I want to help understand the situation, but currently I have been unable to contact the relevant persons of JPEX. The company is processing other details. Relevant units If there is any need for investigation, we will fully cooperate. He admitted that the cooperation would end as early as the end of July.
Other KOLs and celebrities who have cooperated with the exchange have also begun to cut.
JPEX partner Lin Zuo announced on social networking sites that he would stop promoting any exchanges that are not licensed in Hong Kong, and his OTC has also suspended operations. He described that he had also suffered heavy losses and was not much better off; many people who have promoted JPEX Internet celebrities including Coin Master Huang Chengjie, who was arrested for throwing money in Sham Shui Po in 2018, have removed JPEX-related videos from social platforms and stated on Instagram that in order to comply with laws and regulations and the requirements of the Securities and Futures Commission, they will not be promoted or mentioned publicly. Any exchange that has not applied for a license in Hong Kong. As for Julian Cheung, who had shot an endorsement advertisement for JPEX, his agent responded that I just noticed that Julian Cheungs portrait was being used by JPEX, and I feel helpless. Previously, Julian Cheung had been invited to shoot an advertisement, and JPEX told them that he was overseas. They were registered and provided proof, so they arranged to shoot in March last year. However, they learned in May last year that JPEX was under supervision by the Securities and Futures Commission and informed JPEX in writing that they were not allowed to use Zhangs portrait for any advertising before obtaining a license in Hong Kong. And finally stated that it will reserve the right to pursue JPEX.
On the 15th, JPEX issued another special announcement stating that it had closed the game lobby function in accordance with the instructions of the Hong Kong Securities and Futures Commission. The Hong Kong Police stated that the Commercial Crime Investigation Bureau was following up on the incident and called on complaints about JPEX to be reported through electronic reporting. Siu Chak-yee, the Commissioner of Police of the Hong Kong Special Administrative Region, met with the media after attending the event the next day and responded to the JPEX fraud and Cyberport data leakage cases. He stated that the police received a referral from the Securities and Futures Commission the day before yesterday. The Commercial and Crime Investigation Bureau is currently following up on the elements of fraud. As of 3 pm on the 15th, it received reports from 83 people, involving approximately HK$34 million.
On September 17, JPEX issued an announcement stating that due to third-party market makers restricting the liquidity of the platform and in compliance with policy guidelines, all transactions on the financial management page would be removed and liquidity would be recovered from third-party market makers as soon as possible. Gradually adjust the currency withdrawal fees to normal levels. At the same time, JPEX stated in the announcement that it would form a DAO and reorganize its structure to solve the problem and select reasonable solutions for user referendums.
On September 18, the Commercial Crime Investigation Bureau officially arrested KOL Lin Zuo and another Internet celebrity Chen Yi who participated in the promotion on charges of fraud. It is reported that Lin Zuo has opened a currency speculation company in Central last month. He stated in a more high-profile manner on social platforms that he had applied to become a JPEX partner. He revealed that one of his incomes was as high as NT$740,000. At the same time, he said bluntly: Its so easy to find N times more than I did in insurance before. It’s so easy to earn N times as much as doing insurance before)”.
On September 19, the Chief Executive of the Hong Kong Special Administrative Region, Lee Ka-chiu, stated that in response to the case of the virtual asset trading platform JPEX, the police and the Securities and Futures Commission have been asked to meet with the media this afternoon to explain the relevant incidents. He said that this incident reflects the importance of supervision, including the need to invest in regulated and licensed trading platforms, and the importance of personal understanding of virtual assets and related risks. He also emphasized that the current licensing system is to protect investors, and the China Securities Regulatory Commission Market changes will be monitored to ensure that investors interests are fully protected, and the authorities will also vigorously promote investor education.
On the afternoon of that day, the police held a case briefing and stated that as of 10:00 on the 18th, the police had received 1,641 reports involving approximately HK$1.2 billion. Currently, 4 men and 4 women involved in conspiracy to commit fraud have been arrested. 800 people have been found in this operation. Ten thousand yuan in cash, and more than 12 million yuan in bank deposits and 44 million yuan in properties have been frozen. The above 67 million yuan in assets are suspicious criminal proceeds.
Senior Superintendent Kong Qingxun of the Commercial Crime Investigation Bureau said that JPEX used advertising, social media, over-the-counter currency exchange shops, and KOL promotion to promote platform services, claiming low risks and high returns. However, many citizens who were defrauded in the case lacked experience in virtual currency investment. , describing the returns claimed by JPEX as “too good to be true”, and recommending users to convert other cryptocurrencies into JPC tokens issued by JPEX, which have little liquidity on other platforms, and some owners even convert cryptocurrencies to JPC tokens. The private key of the asset is handed over to JPEX. He said that he had noticed JPEX’s tough response in the incident and was investigating it from all angles. The people behind JPEX were also investigating.
Huang Lexinze, director of the Financial Technology Group of the China Securities Regulatory Commission, said that due to the original regulatory framework, the China Securities Regulatory Commission did not have the authority to regulate virtual asset trading platforms, but as early as July 2022, it had listed JPEX as an unlicensed company and a suspicious website to remind the public. Since the new compulsory regulatory system came into effect in June this year, all platforms that have no intention of applying for a virtual asset trading platform license need to wind down their Hong Kong operations in an orderly manner. However, JPEX neither applied for a license nor ended it in an orderly manner. It did not name anyone on August 7. The public was reminded to be aware of the risks of unlicensed virtual asset trading platforms, but JPEX intensified its efforts, issuing a warning by name on September 13 and requiring KOLs and exchange shops to stop promoting JPEX. If the list of virtual asset trading platforms that are applying is made public, this may lead to the mistaken belief that these platforms will be subject to supervision, and the arrangement of only publishing virtual asset trading platforms that have obtained licenses will be maintained.
The police comprehensively analyzed the operation mode and promotion methods of the virtual asset trading platform JPEX, saying that there are five elements that constitute suspected fraud:
JPEX has not applied for or held a Securities and Futures Commission license at all, but it states on its website that it is a licensed and recognized digital asset and virtual currency platform. It also uses advertising, media, over-the-counter (OTC) and Internet celebrities publicize and create popularity to attract investors.
Some Internet celebrities have made false and misleading statements and flaunted their wealth online to create the appearance of getting rich by buying coins to increase their persuasiveness. However, since the China Securities Regulatory Commission has issued warning letters to relevant parties and physical stores beforehand, there is reason to believe that The person involved knew that JPEX’s methods were illegal, but still promoted them to customers.
When JPEX users register, they can exchange different cryptocurrencies on the platform, or transfer virtual assets to their JPEX account on foreign platforms for trading. However, the investigation found that JPEX also issued the JPC virtual currency, but JPC is different from other mainstream cryptocurrencies: JPC cannot be traded on other platforms, nor can it be used for payment purposes. Some victims were persuaded to buy JPC and used it as a so-called pledge similar to a fixed deposit method, and only received extremely high returns after the pledge expired. JPEX will also require customers to provide private keys for cryptocurrency for safekeeping, and JPEX basically uses this method to control users assets.
After being warned by the China Securities Regulatory Commission, JPEX arbitrarily set the upper limit for users to withdraw assets to 1,000 USDT and charged a handling fee of 999 USDT, thus restricting the withdrawal of assets in disguise.
As of the early morning of the 18th, all financial transaction services were removed from the JPEX website.
On the evening of the 19th, eight people detained in connection with the case were released on bail pending investigation, but they must report to the police in mid-October. Previously, the JPEX official website announced that it was registered with the Australian Securities and Investments Commission (ASIC) as JP-EX Crypto Asset Platform Pty Ltd. However, the company applied to ASIC for voluntary deregistration (Voluntary deregistration) on September 19. The applicant was the companys Director Jieyi Chen.
On September 20, the China Securities Regulatory Commission once again issued a statement on JPEX, stating that JPEX claimed to be a virtual asset trading platform and was not subject to regulation. Since March 2022, the China Securities Regulatory Commission has been paying close attention to the platform and began to investigate the platform. Investigation into suspected false and misleading statements and unlicensed activities. As JPEX has been uncooperative and failed to respond substantively to the CSRCs requests, the CSRC subsequently added JPEX to the CSRCs list of unlicensed companies and suspicious websites in July 2022. The SFC confirmed that JPEX has never approached the SFC regarding a possible license application, and that none of the entities under the JPEX Group has been licensed by the SFC, nor has it applied to the SFC for a license to operate a virtual asset trading platform in Hong Kong. Therefore, there is no communication between the SFC and JPEX on matters related to licensing.
On the same day, some users said that users of Hong Kong telecommunications service providers 1010 and CSL were unable to use the JPEX mobile app. It is understood that all local telecommunications service providers in Hong Kong have received instructions from the police to block the app, which means that other telecommunications service providers may also have the opportunity to block the App later.
On September 21, the Hong Kong police reported updated information on the JPEX case. Yesterday, three more men were arrested on suspicion of conspiracy to commit fraud and are now being detained for investigation. A total of 11 people have been arrested in the case so far. As of 5 p.m. on September 20, the police had received reports from 2,086 victims, involving a total amount of approximately HK$1.3 billion. The police said that the investigation was still ongoing, and they did not rule out the arrest of more people. Stars such as Leslie Cheung, who had previously participated in the filming of commercials, This morning, we also arrived at the Hong Kong Police Headquarters to assist in the investigation. Later that day, Li Huiqiong, chairman of the Hong Kong Democratic Alliance for the Betterment of Hong Kong, Chen Zhongni, a member of the election committee, and Huang Junshuo, a member of the accounting profession, jointly wrote to the Hong Kong Financial Affairs Committee, stating that the JPEX incident was serious and requested that the discussion of JPEX be added to the agenda of the October 9 meeting. The Hong Kong Securities Regulatory Commission will attend the event for further explanation.
On the 21st, when Li Jiachao attended the reception for the Hong Kong financial services community to celebrate the 74th National Day of the founding of the Peoples Republic of China and the 26th anniversary of the return of the Hong Kong Special Administrative Region, he said that he was very concerned about relevant events and believed that investor education was very important. The financial services community recommended any investment to investors. During the project, the risks must be clearly communicated. Legislative Council member Li Weihong also said in his speech that the JPEX incident proved that it is correct for Hong Kong to establish a sound virtual asset licensing system. He called on the public to use licensed institutions and reputable companies, and not to easily trust so-called Internet celebrities or unlicensed companies. Investment expert. The public is reminded that no investment product offers extremely high returns without any risk.
On September 22, JPEX issued an announcement stating that due to being blocked by telecom operators, users who registered using Hong Kong telephone numbers could no longer receive SMS verification codes. In the announcement, JPEX provides customers with an emergency currency withdrawal method. When entering the SMS verification code, replace it with the last six digits of the users registered phone number. JPEX also reminds users who registered using a Hong Kong phone number to immediately bind their account electronically. Email to ensure asset security.
Conclusion
When the Hong Kong government encouraged the support of Web3 but the policy was still not perfect, JPEX made a lot of publicity and the amount of money involved in the case broke a record. This is undoubtedly a blow to the ambitious Hong Kong Web3 industry, and it has overdrafted the trust of ordinary people who already know little about the industry. Although the China Securities Regulatory Commission previously stated at a press conference that the China Securities Regulatory Commission has no authority before the new regulatory mechanism takes effect on June 1 Although no action has been taken, several lawmakers still criticized the Securities and Futures Commission for inaction and shirking of responsibilities.
Where will Hong Kong Web3 go after this incident? Fong Baoqiao, honorary president of the Hong Kong Information Technology Chamber of Commerce, said that supervision does not mean that nothing will happen, but he also added:
I think the existence of virtual currency is valuable, because you can always see the whole world running.
