Hong Kong SFC Issues Statement on Virtual Asset Trading Platform for Disclosing Confidential Exchange Between SFC Enforcement Agency & JPEX, 8 Arrested for Alleged Fraud, Police Received Complaints from 1,641 Investors with $153 Million Investments
21st September 2023 | Hong Kong
The Hong Kong Securities & Futures Commission (SFC) has issued a statement on virtual asset trading platform JPEX for disclosing confidential exchange between Hong Kong SFC enforcement agency & JPEX, with Hong Kong police arresting 8 individuals for alleged fraud, and the police receiving complaints from 1,641 investors with around $153 million of investments (18/9/23, HKD 1.2 billion). Hong Kong SFC: “The Securities and Futures Commission (SFC) issues this statement in light of the overall public interest in relation to suspicious practices and activities of JPEX and certain false and misleading claims made by JPEX of its communication with the SFC. We also deeply regret that JPEX has publicised confidential correspondence between the SFC’s Enforcement Division and JPEX, in breach of the secrecy / confidentiality provisions of the Securities and Futures Ordinance (SFO) and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO).” Earlier in September 2023, the Hong Kong Securities & Futures Commission (SFC) issued a warning on unlicensed virtual asset trading platform JPEX including complaints from retail investors who are unable to withdraw virtual assets, with JPEX offering high returns and actively promoting products to Hong Kong public via OTC virtual asset money changers (Over-the-Counter), social media influencers & key opinion leaders. More info below:
“ Hong Kong SFC Issues Statement on Virtual Asset Trading Platform for Disclosing Confidential Exchange Between SFC Enforcement Agency & JPEX, 8 Arrested for Alleged Fraud, Police Received Complaints from 1,641 Investors with $153 Million Investments “
JPEX on 20th th Sept 2023 – We deeply regret to inform you of the recent challenges our platform has encountered. The telecommunications service providers in the Hong Kong region, at the request of the Securities and Futures Commission (SFC), have unreasonably blocked our mobile application and official website. Since September 13, 2023, the SFC has suddenly made a series of accusations against our platform’s operating model and promotional methods, which we vehemently resent as they were made without investigation or review. The SFC has repeatedly denied our platform’s attempts at communication and, now, even ordered the telecom providers to block our website, which undoubtedly exposes their prejudice and unfair treatment towards our platform. We have always strived to comply with regulations in all regions and continuously update our related products, including the removal of the game lobby and suspension of financial products, all in an effort to provide users with a quality trading environment. We have always hoped to hold rational consultations and communications with the SFC, but regrettably, our repeated efforts to seek guidance and ask questions have often been dismissed or sidestepped with official rhetoric by the SFC. Here, we strongly reiterate that, even in the face of such oppression and unfair treatment, our platform will continue to operate as usual. Users can log into our mobile application or operate on our web version using VPN applications like Surfshark (https://surfshark.com). We will continue to uphold our responsibility and provide full-fledged services to all users. Thank you for your understanding and support. We will continue to provide you with quality services and work hard to resolve the current issues.
JPEX on 17th Sept 2023 – Recently, due to the unfair treatment by relevant institutions in Hong Kong towards JPEX, a cryptocurrency trading platform, and a series of negative news, our partnered third-party market makers have maliciously frozen funds. They demanded more information from the platform for negotiation, restricting our liquidity and significantly increasing our daily operating costs, leading to operational difficulties. To protect users’ interests, we are currently negotiating with these third-party market makers to resolve the liquidity shortage as soon as possible. However, to avoid negatively impacting the negotiation outcomes, the details will be announced after the negotiations are concluded. Due to the third-party market makers restricting our liquidity and to comply with policy guidelines, all transactions on our Earn Trading interface will be delisted on September 18, 2023, at 00:00 (GMT+8). At that time, users will not be able to place any new Earn order. Existing ongoing Earn orders will continue until the product’s end date to receive reward. We promise to recover liquidity from third-party market makers as soon as possible and gradually adjust the withdrawal fees back to normal levels. During this period, our dedicated withdrawal team responsible for handling emergency withdrawal requests will continue to prioritize users’ needs. We hope to navigate through these challenging times together with our users. JPEX has always believed that a decentralized autonomous organization (DAO), with decisions jointly made by every member of the community, can unleash enormous power. We understand that to keep the platform running stably, we must restructure at this stage to redefine our operational direction and jointly formulate future strategies for JPEX. Toward this end, we will publicly collect users’ suggestions, discuss proposals with the dedicated team, and select reasonable plans for a user referendum. The specific implementation of the referendum will be announced the following day. We look forward to users’ participation and moving forward together. Link is below here: https://forms.gle/wcsz6EjmpD5j9S9j8
We hereby promise that JPEX will continue to operate unswervingly. The platform has been working around the clock, integrating all team resources, striving for new solutions, and will not falter due to the severe challenges caused by irreversible policy risks. We will maintain our user-centric approach, and we thank you for your ongoing support!
Hong Kong SFC Issues Statement on Virtual Asset Trading Platform for Disclosing Confidential Exchange Between SFC Enforcement Agency & JPEX
20th September 2023 – The Securities and Futures Commission (SFC) issues this statement in light of the overall public interest in relation to suspicious practices and activities of JPEX and certain false and misleading claims made by JPEX of its communication with the SFC. We also deeply regret that JPEX has publicised confidential correspondence between the SFC’s Enforcement Division and JPEX, in breach of the secrecy/confidentiality provisions of the Securities and Futures Ordinance (SFO) and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) (Note 1).
JPEX purports to be a virtual asset trading platform and is unregulated, and has been on the SFC’s radar since March 2022 when the SFC began making enquiries into its suspected false and misleading representations and unlicensed activities. As JPEX has been uncooperative and unable to substantively respond to the SFC’s requisitions, the SFC subsequently placed JPEX on the SFC’s Alert List in July 2022 (Note 2).
The confidential correspondence disclosed by JPEX on its website formed part of the SFC’s aforesaid enquiries and investigations into JPEX. The SFC affirms that JPEX has never approached the SFC in respect of any potential licence application, and that no entity in the JPEX group is licensed by the SFC or has applied to the SFC for a licence to operate a virtual asset trading platform in Hong Kong. As such, there has been no communication between the SFC and JPEX on licensing-related matters.
Subsequent information obtained has led to suspicion of fraud and the SFC has referred the matter to the Police. As investigations are ongoing, the SFC cannot make any further comment.
Notes:
- In so doing, JPEX is in violation of provisions of section 378 of the SFO and section 76B of the AMLO which impose an obligation on a person assisting the SFC in a statutory enquiry or investigation to preserve secrecy/confidentiality for any matter coming to its knowledge.
- Since then, the SFC and the Investor and Financial Education Council together have on at least nine occasions issued investor alerts on their respective websites, social media platforms and via TV/radio channels, against dealing with unlicensed platforms and related malpractices, until the public statement naming JPEX again on 13 September 2023.
Hong Kong SFC Issues Warning on Unlicensed Virtual Asset Trading Platform JPEX Including Complaints from Retail Investors Unable to Withdraw Virtual Assets, JPEX Offers High Returns & Actively Promote Products to Hong Kong Public via OTC Virtual Asset Money Changers, Social Media Influencers & Key Opinion Leaders
14th September 2023 – The Hong Kong Securities & Futures Commission (SFC) has issued a warning on unlicensed virtual asset trading platform JPEX including complaints from retail investors who are unable to withdraw virtual assets, with JPEX offering high returns and actively promoting products to Hong Kong public via OTC virtual asset money changers (Over-the-Counter), social media influencers & key opinion leaders. Hong Kong SFC: “The SFC wishes to make it clear that no entity in the JPEX group is licensed by the SFC or has applied to the SFC for a licence to operate a VATP in Hong Kong … …. a) JPEX states on its website that it is “a licensed and recognised platform to facilitate the trading of digital asset and virtual currency”. It claims on its website and local advertorials to have obtained licences from certain overseas regulators to operate VATP, which is in fact not true. b) JPEX offers very high returns for some of its products c) The SFC has received complaints from, and notes that there have been media reports of, retail investors who were unable to withdraw virtual assets from their accounts maintained with JPEX, or had found their account balances having been reduced and altered.” See below for more info:
Hong Kong SFC Issues Warning on Unlicensed Virtual Asset Trading Platform JPEX Including Complaints from Retail Investors Unable to Withdraw Virtual Assets
13th September 2023 – The Securities and Futures Commission (SFC) is aware that a virtual asset trading platform (VATP) known as “JPEX” has been actively promoting its products and services to the Hong Kong public through social media influencers and key opinion leaders (KOLs) as well as over-the-counter virtual asset money changers (OTC Shops) (Note 1).
The SFC wishes to make it clear that no entity in the JPEX group is licensed by the SFC or has applied to the SFC for a licence to operate a VATP in Hong Kong. The SFC has also observed a number of suspicious features about the practices of JPEX and those actively promoting it to the Hong Kong public:
- (a) JPEX states on its website that it is “a licensed and recognised platform to facilitate the trading of digital asset and virtual currency”. It claims on its website and local advertorials to have obtained licences from certain overseas regulators to operate VATP, which is in fact not true (Note 2).
- (b) JPEX offers very high returns for some of its products (Note 3).
- (c) The SFC has received complaints from, and notes that there have been media reports of, retail investors who were unable to withdraw virtual assets from their accounts maintained with JPEX, or had found their account balances having been reduced and altered.
- (d) Some of the products offered by JPEX appear to be arrangements involving virtual assets such as virtual asset “deposits”, “savings” or “earnings” which are not allowed under the SFC’s regulatory regime for VATPs (Notes 4 and 5).
- (e) JPEX publicised on its website and local advertorials that it had entered into a business cooperation with and received investment from a Hong Kong listed company, when, in fact, the cooperation has already been terminated and no investments were actually made by the listed company.
- (f) KOLs and OTC Shops have made false or misleading statements on social media to suggest that JPEX has applied for a VATP licence in Hong Kong, either independently or in partnership with a Hong Kong listed company, when in fact no entity in the JPEX group has submitted any VATP licence application to the SFC.
The SFC has notified the relevant KOLs and OTC Shops of the SFC’s suspicions and concerns and requested them to cease promoting JPEX and its related services and products.
Under section 53ZRF of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), a person commits an offence if the person, directly or indirectly, in a transaction involving any virtual assets: (i) employs any device, scheme or artifice with intent to defraud or deceive, or (ii) engages in any act, practice or course of business that is fraudulent or deceptive, or would operate as a fraud or deception (Note 6).
Under section 53ZRG of the AMLO, a person commits an offence if the person makes any fraudulent misrepresentation or reckless misrepresentation for the purpose of inducing another person to enter into, or offer to enter into, an agreement to acquire, dispose of, subscribe for or underwrite any virtual assets (Note 7).
The SFC is also empowered by section 53ZTH to take action against any persons who are knowingly or unknowingly involved in contravention-related conduct under the AMLO.
The SFC will not hesitate to take enforcement action against individuals and entities who fail to abide by the VATP regime administered by the SFC, including those who are involved in such violations.
The SFC takes this opportunity to warn investors to be cautious about investment opportunities that seem too good to be true. Investors should be sceptical of investment advice posted on social media platforms and instant messengers by KOLs who are often paid promoters but not investment professionals.
Once again, the SFC warns investors to be wary of the risks of trading virtual assets on an unregulated VATP. Investors may risk losing their entire investment held on the VATP if it ceases operation, collapses, is hacked or otherwise suffers from any misappropriation of assets. Seeking recourse against platforms that do not have a nexus with Hong Kong is likely to be difficult and legal remedies may not be available. If in doubt about the licensing status of any VATP, please refer to the SFC’s list of licensed virtual asset trading platforms.
Notes:
- JPEX is a VATP operating at the website of jp-ex.io, which has been placed on the SFC’s Alert List since 8 July 2022.
- While JPEX is registered as a business or entity with certain overseas regulators, these registrations do not constitute approval or licences to allow virtual asset trading services to be legally provided in those jurisdictions. JPEX claims on its website that its operating headquarters is located in Dubai and under the supervision of the Virtual Assets Regulatory Authority of Dubai (VARA), its trading system “has stricter regulatory standards and more transparency and openness in cross-border transactions”, but JPEX is not on the public list of licensed virtual assets service providers published by VARA.
- For example, as at 12 September 2023, JPEX’s savings product offered 21% annual percentage yield (the rate of interest/return earned in one year) for ETH, 20% for BTC and 19% for USDT according to its website at jp-ex.io.
- Paragraph 7.26(b) of the Guidelines for Virtual Asset Trading Platform Operators provides that a platform operator should not make any arrangements with its clients on using the client virtual assets held by the platform operator or its associated entity with the effect of generating returns for the clients or any other parties.
- Pursuant to section 53ZRK of the AMLO, the SFC may grant a licence to an applicant only if the SFC is satisfied, among other things, that the applicant is a fit and proper person to be licensed for the virtual asset trading service. If JPEX makes any application for a VATP licence, the SFC will take into account whether it has been involved in providing services and products that may not comply with the applicable legal and regulatory requirements, whether its involvement in such activities could have reasonably been avoided and whether it can demonstrate a genuine intention to rectify non-compliant activities, including gradually unwinding impermissible transactions in an orderly manner, all of which reflect the applicant’s ability to provide the virtual asset trading service competently, honestly and fairly. The SFC takes a dim view of any continued promotion of non-compliant activities.
- A person who commits this offence is liable: (i) on conviction on indictment, to a fine of $10,000,000 and to imprisonment for 10 years; or (ii) on summary conviction, to a fine of $1,000,000 and to imprisonment for three years.
- A person who commits this offence is liable: (i) on conviction on indictment, to a fine of $1,000,000 and to imprisonment for seven years; or (ii) on summary conviction, to a fine at level 6 and to imprisonment for six months.
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