Hong Kong investigates JPEX crypto platform, city leader says fraud allegations show need for regulation

JPEX claimed that new users who signed up under the plan could get twice the payout.

Technology lawyer Joshua Chu Kiu-wah warned that investors who joined JPEX’s new dividend plan might expose themselves to money laundering charges if the funds used on the platform could be traced back to them.

“If these funds are traced back to individuals dealing with JPEX or their agents, they may have no defence against accusations of accepting or engaging in, inter alia, money laundering activities and be exposed to associated liabilities,” he said.

The SFC launched a new licensing regime for virtual asset trading platforms in June, mandating that exchanges servicing retail customers apply for and receive approval within a one-year grace period.

On Wednesday, it accused JPEX of ignoring rules under the regime and reiterated that the platform had never made contact with the regulator regarding potential authorisation.

A Post check found that a company registered in Australia under “JP-EX Crypto Asset Platform Pty Ltd” applied to regulator the Australian Securities and Investments Commission (ASIC) for voluntary deregistration on Tuesday, a day after Hong Kong police arrested eight people in connection with the JPEX case.

According to information on the registry, the company registered in 2020 had assets worth less than A$1,000 (US$647) and its current director was named Chen Jieyi, 32, born in Guangdong province.

The company was registered by the previous director, a 28-year-old born in Hong Kong named Cheung Sze-ki, before he handed over the firm to Chen in 2021.

Accounting sector lawmaker Edmund Wong Chun-sek said the timing of the application for deregistration was “not a mere coincidence” and the company could be looking partly to shirk responsibility.

“It seems JPEX is trying to buy time to transfer away their funds … while reassuring Hong Kong investors that the platform is safe so they will let their guard down and not withdraw their money or press charges overseas,” Wong said.

He urged victims in Hong Kong seeking to take the company to court to act fast and contact lawyers or accountants in Australia.

“This would make it difficult for the company to deregister because companies have to declare they are not in litigation or in debt when they apply,” he said.

“This also alerts the Australian government that there is a group of victims pressing charges so they will delay the process.”

The process of deregistering a company usually took six to nine months, Wong said.

Emil Chan Ka-ho, co-chairman of the Hong Kong Digital Finance Association, said the government should have set up regulatory frameworks for the cryptocurrency industry two to three years ago when it began growing in the city.

With nine months left in the one-year grace period for trading platforms to apply for a licence, Chan urged authorities to take action to prevent the 100 unlicensed cryptocurrency platforms in the city from making false claims.

“Authorities should reveal to the public which companies are in the process of applying for a licence during the grace period, as this is a loophole,” he said.

This article was first published on SCMP.