Author of the article: Meta Era guest author 0xShinChan
The Hong Kong police and the Hong Kong Securities and Futures Commission recently investigated the cryptocurrency trading platform HOUNAX. Following the suspected fraud case of JPEX, this incident has once again attracted attention. As of the afternoon of November 28, 2023, the number of victims had increased to 145, and the total amount involved was approximately HK$148 million.
Hong Kong Securities and Futures Commission issues warning
On November 1, HOUNAX was placed on the list of suspicious platforms by the Hong Kong Securities and Futures Commission and received complaints from multiple investors about suspicious activities. The Securities and Futures Commission noted that HOUNAX calls itself a cryptocurrency trading platform and claims to be working with a financial institution and another venture capital firm, but this is not the case. The above-mentioned company seems to be targeting Hong Kong investors. Its user registration page has a preset +852 area code, and it also has HOUNAX Hong Kong social media channels on Facebook, X (formerly known as Twitter) and YouTube.
HOUNAX involves cross-border registration
HOUNAX, formerly known as Nine Coins, is a platform targeting Hong Kong customers and claims to be registered in Singapore. However, no registration records of the company with the same name were found in Hong Kong and Singapore. The company has published sponsored articles in blockchain media, claiming that its full name is HOUNAX GLOBAL CRYPTO PTY LIMITED and it has licenses from the United States, Canada, and Australia.
According to Canadian search records, HOUNAX GLOBAL CRYPTO PTY LIMITED was established on February 2, 2021, and changed its name to its current name on April 25, 2023. The companys registered address is in Ottawa, the capital of Canada, and the directors name is DENG Shijie.
Records from the Financial Crimes Enforcement Bureau of the U.S. Department of the Treasury show that HOUNAX GLOBAL CRYPTO PTY LIMITED, a company registered in Melbourne, Australia, has been registered in the United States as a Money Services Business since May this year.
A search by the Australian Securities and Investments Commission shows that HOUNAX GLOBAL CRYPTO PTY LIMITED was established in Australia in May 2023. The director of the company is named ANDREA PARLAGRECO, an Italian national.
This series of cross-border searches revealed the possible cross-border e-commerce activities behind HOUNAX and its complex registration background, making the investigation of this case even more difficult.
HOUNAX Fraud
It is reported that the HOUNAX fraud case is different from the JPEX case. It mainly publishes advertisements through social media and uses celebrities’ successful investments as a gimmick to attract citizens to join chat groups and open investment accounts.
The Hong Kong Securities and Futures Commission found during its investigation that when the platform required investors to deposit funds, funds would flow into third-party personal or institutional accounts instead of the platforms own accounts. In addition, scammers will pretend to be investment experts, invite investors to join instant messaging software groups, and frequently exaggerate high returns to induce investors to increase their investment.
HOUNAX’s official website falsely claims that it needs to comply with the regulations of international anti-money laundering organizations and requires victims to pay 80% of the investment amount in their asset accounts as verification fees before they can redeem their investments. When investors make withdrawal requests, they will refuse with various excuses, such as requiring high fees or requiring investors to deposit again to unfreeze their accounts.
Statements from all parties in the Hong Kong government
Hong Kong Securities and Futures Commission: Will cooperate with police
Leung Fengyi, chief executive of the Hong Kong Securities and Futures Commission, said: HOUNAX involved in the case has not obtained a license, nor has it applied for a license from the Securities and Futures Commission. Under the current regulations, the SFC currently does not have the power to stop the operation of unlicensed platforms. However, she emphasized that the Hong Kong Securities and Futures Commission will never sit idly by and will cooperate with the police to take legal action against suspicious persons.
Liang Fengyi mentioned that there are also suspicious people who claim to have investment tips to share with the public. Members may exaggerate the so-called return tips and show initial investment returns to make people mistakenly think they can get returns. In terms of payment processing, scammers allow users to withdraw small amounts of money, making it easy for investors to relax their vigilance and believe that the platform is safe. However, Liang Fengyi pointed out that a large number of complaints received were due to users being unable to withdraw large amounts of funds. When scammers learn that users want to withdraw large amounts of money, they may make it more difficult to withdraw money for reasons such as high handling fees.
Huang Lexin, Director of the Licensing Section and Head of the Financial Technology Group of the Intermediary Department of the Hong Kong Securities and Futures Commission, said that even after the transition period ends, there is no guarantee that fraud will not occur, so the main cause of fraud cases does not lie in the transition period itself. Liang Fengyi also responded by pointing out that various suspicious techniques common in traditional financial fraud, such as exaggerating bulk goods, may also appear in the virtual asset industry.
Hong Kong Legislative Council member: Worried that more criminals will take advantage of the licensing cooling-off period to commit fraud
Kong Yuk-huan, a member of the Hong Kong Legislative Council, questioned the role of the Securities and Futures Commission in the incident, believing that it was relatively passive in blocking relevant company web pages in a timely manner. She is worried that during the cooling-off period of the virtual asset trading platform licensing system, more criminals may take advantage of this opportunity to commit fraud. Jiang Yuhuan pointed out in the Radio Hong Kong program that compared with the rapid blocking of similar fraudulent websites abroad, the response of local law enforcement agencies has obviously lagged behind. She also urged the China Securities Regulatory Commission to strengthen inspections of social networks and proactively notify the public when suspicious web pages are discovered.
Hong Kong Chief Executive Li Ka-chiu: Emphasizing the importance of compliant investment
On November 28, Hong Kong Chief Executive Li Jiachao spoke with the media before the executive meeting on the issue of virtual asset investment platforms. He made it clear that the Hong Kong government has a clear position on online platforms for virtual asset investment. First of all, investors must conduct virtual asset transactions on a licensed platform to protect their interests, so the regulatory system is crucial. Second, information release must be transparent and timely. Third, public education needs to be strengthened to let the public understand investment risks, especially the importance of investing on a licensed platform, because having a license means meeting legal requirements, while being without a license is extremely risky.
Li Jiachao understands the concerns of citizens and pointed out that the government will actively consider re-granting some powers to relevant regulatory authorities if necessary. The government will actively consider any laws that need strengthening or further improvements in information transparency and will ask relevant departments to do more work in this area.
32 HOUNAX-related websites flagged and deleted by police
On November 30, the Hong Kong Special Administrative Region Police stated that the virtual asset investment platform HOUNAX was constantly changing its website address in an attempt to evade the police’s anti-fraud warnings and tracking. Since October, police have flagged 32 HOUNAX-related websites and referred them to relevant agencies for removal or blocking.
