The crypto fire in Hong Kong was still budding, but a bucket of heart-breaking cold water was poured on it.
On September 13, the Hong Kong Securities and Futures Commission rarely named a virtual asset platform JPEX. This was also the first virtual asset exchange to receive a red card warning since Hong Kong’s new encryption regulations.
According to the official website of the Securities and Futures Commission, JPEX actively promotes the platform’s services and products to the Hong Kong public through social media influencers and over-the-counter virtual asset currency exchangers. None of the entities under the JPEX Group has been licensed by the SFC, and has not applied for a license from the SFC to operate a virtual asset trading platform in Hong Kong.
In response to the naming, JPEX stated on its official website that day that "the unfair suppression by the SFC has led us to consider withdrawing our license application in Hong Kong and adjusting our future policy development accordingly.
The SFC should also bear full responsibility for undermining the development prospects of cryptocurrencies in Hong Kong. "From the perspective of attitude, JPEX is clearly dissatisfied, believing that there are too many institutions claiming to have applied for exchange licenses, and being announced can only prove the SFC's discrimination, and the last sentence is even more arrogant and indirect.
What’s even funnier is that despite the tough response, the JPEX booth at the Token2049 event held that day was already deserted. A booth costs at least 10,000 U in booth fees. They would rather abandon the booth and run away, which shows how panicked they are.
JPEX fled in a hurry at Tokens2049.
After that, the course of events became increasingly bizarre.
On September 14, a screenshot of a withdrawal went viral in multiple crypto communities. A KOL withdrew 1,000 U from JPEX but only received 1 U, with a handling fee of 999 U, so he angrily called it a "fake exchange" on Twitter.
JPEX responded again, attributing the cause to the CSRC's criticism, saying that due to the statement, it was "forced" to adjust the USDT fee in the early morning of the 14th. The statement undoubtedly caused heated discussions on Twitter, and the industry continued to abuse and discuss.
Withdrawal screenshot
After withdrawing funds from the withdrawal address given in the subsequent statement, the amount received increased to 20U, showing a rogue attitude of "you can obviously grab it, but you have to take it reasonably". At present, the exchange has been unable to withdraw funds, and the police have intervened in the investigation. The influencers involved in the promotion have also been affected. According to the police, as of 22:00 on the evening of the 18th, a total of 1,641 people reported the relevant incidents, involving an amount of about 1.2 billion yuan, and the investor with the largest amount of money invested up to 40 million yuan.
At this point, the crusade against JPEX has affected the entire crypto industry in Hong Kong and Taiwan.
01There is not a single truthful statement on the JPEX official website? What kind of exchange can be so shameless and stubborn? With this question in mind, the author collected information from various sources to investigate JPEX, which revealed a more surprising scam.
In fact, Hong Kong people are no strangers to JPEX, and the exchange's promotional posters can be seen in major streets in Hong Kong. According to the official website, JPEX's headquarters is in Dubai, and it has been focusing on serving the Asia-Pacific region for 20 years. It claims to have obtained the Canadian MSB Fintrac license, the Australian ASIC license, and the MSB financial license issued by the US FinCEN.
But back to reality, the actual situation is quite different from the introduction. JPEX was renamed JPEX Green Stone Exchange this year and officially entered Hong Kong in 2021, mainly promoting it on a large scale through influencers and off-site promotion.
At the beginning of its entry into Hong Kong, it deliberately tried to smear the Japanese crypto exchange JPX, and hyped it up as a famous Japanese exchange, forcing JPX to personally clarify on February 8, 2022 that the name had nothing to do with the subject. After the clarification, JPEX responded as usual that the company had no relationship with JPX, but even if you search for the exchange on Baidu now, there are still words such as Japanese exchange and Singapore headquarters associated with it.
JPX Japan Exchange clarifies that it has nothing to do with JPEX, source: JPX official website
This is obviously not the only time that JPEX has maliciously touched upon the card. In early 2022, JPEX established a partnership with Simplex and announced the launch of a VISA card in the fourth quarter. JPEX refused to give up the opportunity to hype itself up and promoted it on a large scale in the name of VISA cooperation. VISA was naturally not happy about this. After issuing a negotiation notice, JPEX immediately apologized and made excuses, saying that it planned to cooperate with VISA's card issuing institutions to issue cards, not directly with VISA, and blamed the advertising contractor for the erroneous promotion. However, on the official website, JPEX still has a VISA cooperation promotion page, with an attitude of admitting mistakes and doing it again next time.
The licenses it claims to have obtained are even more suspicious. According to Hong Kong 01, after investigations at company registries in many countries, it was found that JPEX's registrations in various places were suspected to be "dummy" registrations. The platform was registered in 2020 and started operating in 2021. The actual person in charge and office locations of the registered places in many countries around the world have never been made public.
From the perspective of registered companies, except that the director of JPEX Technical Support is Guo Haolin, no clues about the founder have been dug up. It is said that the founder is Huang Zhengjie, the "coin master", but there is no evidence. It has cooperated with two listed companies, Tiangong Holdings (0428) and HMVOD Video (8103), which makes people doubt whether there is a background of capital injection from listed companies. However, in April this year, both listed companies announced the termination of the MOU cooperation with the exchange.
JPEX registration status in various regions, source: Hong Kong 01
The only offline location was once again deserted. According to Hofeng Logistics, JPEX rented the 2nd to 6th floor, 10th floor and the exterior wall advertisements of Building 7 in the Asia Blockchain Building, and all personnel have moved out maliciously. The registered place is not even public, and the license obtained can only be more ridiculous. As expected, when I searched for JPEX on the official website of the US Financial Crimes Enforcement Network (FinCEN), no results were displayed.
What is quite interesting is that after the company withdrew, the beverage company Chunbai accused it of arrears of 1,000 cups of drinks. One can't help but sigh at the depth of JPEX's sickle, which does not spare retail investors, landlords, and even neighbors.
Source: MichaelTurtle
Why is JPEX so popular?
How can such an exchange that is full of lies continue to operate and even appear on the streets under the name of "Hong Kong's largest exchange"?
In terms of current regulations in Hong Kong, although the Securities and Futures Commission has been monitoring the issue of unlicensed operations, it must collect evidence to prove that the platform is operating a business before it can intervene. Therefore, the marketing and promotion of the platform has not been banned.
On the other hand, JPEX hired a large number of Internet celebrities and celebrities from the entertainment industry to endorse JPEX through large dividends and publicity fees. Celebrities who have endorsed or promoted JPEX include Hong Kong male artist Zhang Zhilin, Taiwanese singer Chen Lingjiu, Hong Kong model Zhuang Simin, Hong Kong Internet celebrity "Coin Master" Huang Zhengjie, Hong Kong rich second generation Lin Zuo, Toyz, Fat Mama, Chen Dingbang, etc.
JPEX's former spokesperson Chen Lingjiu, source: Hong Kong Wen Wei Po. After the incident, many artists spoke on the official channels to cut ties with JPEX.
Zhang Zhilin's side claimed that they had already notified JPEX in writing in May that it was not allowed to use his image for publicity before obtaining a license. Spokesperson Chen Lingjiu claimed that the endorsement had ended in July this year, but according to people familiar with the matter, he brought his pet to visit the Asia Blockchain Building where JPEX is located on August 20.
In order to quickly attract traffic, JPEX also launched a partnership system to recruit partners with high commissions. The terms show that if 1,000 people are invited to join JPEX as customers, and the average assets invited within 30 days reach 10 million USDT, the partner will receive a monthly reward of 6,000 USDT, equivalent to 47,000 Hong Kong dollars.
In April this year, JPEX upgraded its system again, stating that "the rebate can be up to 100,000 USDT", equivalent to 780,000 Hong Kong dollars. People familiar with the matter revealed that one of the previous partners of JPEX was Cobitto, who had a history of openly selling exchange KYC.
Kebitu is one of the partners of JPEX
The exchange has already possessed the basic elements of pyramid schemes by creating profits out of thin air by inviting people to participate in the profit sharing. Looking at the products of the exchange, it can be described as illegal written on the public screen. Not only can the exchange obtain rebates by attracting people to participate in the profit sharing, but the annualized rate of return is as high as an outrageous 13 times. The exchange's active interest financial management even reaches 20%, which is comparable to the previous Luna that went bankrupt.
JPEX is suspected of being a pyramid scheme, source: Beike complaint
Tracking the trend of its platform currency JPC, the JPEX platform shows that its 24-hour trading volume is as high as 189 million US dollars, but the data on Coinmarketcap is only 230,000 US dollars, and the manipulation situation is clearly visible. On the other hand, JPEX does not set a funding rate for perpetual contracts. Such an exchange that does not conform to trading common sense can still survive and grow to such a scale, which also makes many old crypto circles amazed.
Comparison of JPC data on Coinmarketcap (front) and JPEX exchange (back)
Despite the many doubts, many retail investors still invested money in it under the temptation of visible publicity and high interest rates, which made them the main group of people injured in the incident. As early as June, JPEX had a criminal record. According to an exposé, in June, JPEX announced the details of the smart contract issuing boxing rewards in "The Cage 2023 Final Battle", and the on-chain data showed that it misappropriated 390,000 USDT of customer assets. Netizens commented, "Take it from the households and use it for the people."
It was previously reported that JPEX misappropriated customer funds
On September 18, Hong Kong Legislative Council member Wu Jiezhuang revealed that he has received help from about 30 victims, and the amount of money lost by each person is different. Some are six-digit, and some are seven-digit. It is estimated that the total amount involved is more than 100 million Hong Kong dollars. The previously promoted Internet celebrities were not spared. In the self-exposure incident promoted on Youtube, Zhuang Simin lost about 500,000 yuan; Toyz, who had received sponsorship fees from JPEX, also lost more than 100,000 US dollars. In the program, he said that the transaction volume of JPC was questionable, the interest rate was extremely high, and NFT was not on the blockchain.
03. What is the impact of the JPEX incident?
Looking at the entire incident, the incident caused by JPEX is not surprising to industry insiders who have experienced the ups and downs of the cryptocurrency circle, but the real victims are the crypto circle in its infancy in Hong Kong.
Since the new regulations were announced in June, Hong Kong has been making frequent moves. From the Chief Executive, legislators to the grassroots, all have issued statements in support of Web3, and legislators have publicly stated their support for compliant exchanges to develop in Hong Kong. It is precisely in this bright state that dark corners have emerged. JPEX took advantage of the policy to promote itself, blinding many investors.
According to Hong Kong Wen Wei Po, both in Hong Kong and the mainland, there are people who are involved in the large-scale publicity and who firmly believe in Hong Kong's regulatory policies. Some mainland investors said that because they had confidence in Hong Kong's financial regulations, they did not believe that Hong Kong regulators would allow unlicensed trading platforms to exist. In addition, there were no problems with "withdrawing funds" on the platform for the first time, so they were confident that their investment exceeded One million Hong Kong dollars. The incident collapsed before it was accomplished. This incident will undoubtedly affect the confidence of mainland investors in investing in Hong Kong.
Hong Kong locals obviously take this very seriously. On September 18, Hong Kong Legislative Council member Wu Jiezhuang held a separate press conference to respond to the suspected fraud incident on the virtual asset trading platform JPEX, saying that the incident had a great impact on the development of virtual assets in Hong Kong and the government should do more to protect small investors.
On September 19, Hong Kong Chief Executive John Lee said that this incident reflects the importance of regulation, including the importance of investing in regulated and licensed trading platforms and the importance of personal awareness of virtual assets and related risks. He stressed that the current licensing system is to protect investors, the SFC will monitor market changes to ensure that investors' interests are fully protected, and the authorities will also vigorously promote investor education.
Although the new regulations have tightened the supervision of virtual currencies, only OSL and Hashkey, two licensed exchanges, are supervised by the SFC and can guarantee that even if they go bankrupt, customer funds can be compensated up to 500,000 yuan. JPEX is not on the licensed list and is not supervised by the SFC, so it can only be investigated by the Hong Kong police for fraud.
From the perspective of civil claims, since it is difficult to grasp the legal entity of JPEX and users are unsecured creditors, the priority of asset distribution during liquidation is after secured creditors, liquidation expenses, priority payments and floating mortgage holders. In this argument, it seems difficult to recover the capital of customers. According to the latest disclosure by the police, the assets involved in this case have reached 1.2 billion yuan.
In this regard, another partner who is deeply involved in the case, Lin Zuo, seemed to have foreseen it. On the 17th, he repeatedly dissuaded users from reporting the case in the fan group, saying that it would not be fruitful and that users should not have the illusion of getting their funds back. At present, according to the latest news from the Acting Chief Inspector of the Commercial Crime Bureau of Hong Kong, Mak Wai-kwong, at the case briefing, Lin Zuo and eight other people involved in the case have been arrested by the police. The JPEX crackdown operation has seized 8 million yuan in cash, and has frozen more than 12 million yuan in bank deposits and 44 million yuan in properties.
The person involved, Lin Zuo, was arrested. Source: Hong Kong Wen Wei Po
Even so, JPEX still did not change its bad habits. In its recent response, JPEX repeatedly emphasized the unfair treatment of relevant Hong Kong institutions, pointed out that this caused market makers to maliciously freeze funds, and said that it would "continue to operate unswervingly." In order to evade supervision, it has removed trading products involving financial management on the 18th.
JPEX issued another announcement on September 18, source: JPEX official website
Such a shameless and outrageous exchange, for Hong Kong, which is in the process of building a crypto ecosystem, not only labels virtual currency as a crime again, exposing loopholes in Hong Kong's control over virtual assets, but also severely undermines the confidence of Hong Kong's political arena and investors in cryptocurrencies. Subsequent handling will be particularly important. Whether it is killing the chicken to scare the monkey or being difficult to trace will determine whether this matter is a thorn in the hearts of investors or a sword hanging over their heads. It is really a bad apple that spoils the whole barrel.
Original author: Yin Ning
Original source: Gyro Finance
