Skip to content

Hong Kong Tightens Grip on VATPs as JPEX Scandal Continues

The scandal might turn out to be the largest financial fraud in Hong Kong. JPEX has suggested that its users recover their funds by buying a stake in the exchange.

The scandal around crypto exchange JPEX started on September 14, when the exchange raised withdrawal fees to 999 USDT and canceled its Earn program following a warning from Hong Kong’s Securities and Futures Commission (SFC). The authority accused the exchange of operating without a license and other malicious practices. At the time, six people were detained by Hong Kong police in connection with a suspected fraudulent crypto scam.

The SFC intends to collaborate with the Hong Kong police to investigate the JPEX incident and bring the wrong-doers to justice. The JPEX mobile application and official website were blocked by the authorities. To date, police have received over 2,300 complaints from victims of the exchange and have taken 11 people into custody, including influencers, YouTubers and employees allegedly involved in the $178 million fraud. The scam's real leaders, however, have presumably fled, according to South China Morning Post.

JPEX still blames the SFC for all the trouble, but “understands its irreplaceable responsibility and is striving to resolve the current situation.” The platform has promised to launch a “DAO Stakeholders Dividend Plan” to save the day. As of September 25, 69% of voters agreed with the implementation of the scheme which is as follows:

  • JPEX will distribute 49% of the DAO Stakeholder dividends, with a total value of approximately 400,000,000 USDT for subscription and conversion. Existing users can convert their assets currently held on the platform to DAO Stakeholder dividends at a 1:1 ratio.
  • JPEX will offer a repurchase option at 30% of the original conversion price one year later and a repurchase at 100% of the conversion price two years later.

Recently JPEX published an urgent announcement saying that users registered with Hong Kong numbers cannot retrieve SMS verification codes due to the complete blockade of the platform by telecommunications providers.

In a worrying development, JPEX suggested the following emergency method to withdraw cryptocurrency: “enter the last six digits of your registered phone number when inputting the SMS verification code. If the phone number is 1234 5678, input 345678 as the verification code.” Thus HK users’ funds would currently seem to be overly prone to theft.  

Following the JPEX scandal, the SFC announced the publication of a special blacklist of suspicious cryptocurrency trading platforms and four more lists of VATPs at different stages of licensing. The authority has promised to spread transparent and full information on the topic and begin investor education to increase awareness of fraud prevention.

This incident might serve as a useful crash-test for Hong Kong, which hopes to become an international crypto hub, and also for its regulatory system. We will continue to Observe and will keep you updated.