The China Securities Regulatory Commission issued a statement on Wednesday (13th) saying that the virtual asset trading platform JPEX operated without a license and referred the case to the police. Yesterday (18 December), the Commercial Crime Bureau conducted large-scale enforcement operations to search a number of offices and arrested Lam Zuo and KOL "Chan Yi" and others for "conspiracy to defraud". This morning (19th), Chief Executive John Lee Ka-chiu described the incident as fraudulent. The police and the SFC held a press conference at 4 p.m. to explain the case, in which the police said that a total of four men and four women have been arrested so far, including the heads and staff of the companies involved and the OTC. As of 4:4 p.m. last night, the Police had received reports from 10,1 persons about the incident, alleging that they failed to withdraw assets from JPEX and suspected of being defrauded, involving an amount of $641,11 million, which was initially believed to be the actual deposit amount of the victim, and the largest of the victims lost $8 million. The SFC said all those arrested had received warning letters from the SFC.

The Police and the SFC reported the progress of the JPEX investigation. From left, Director of the Enforcement Division of the SFC Cheng Tak-ka, Director of the SFC's Licensing Division and Head of Fintech Division, Wong Lok Yan, Senior Superintendent of the Commercial Crime Bureau of the Police Hung Hing-hun, Superintendent Lee Mu-yin and Acting Chief Inspector Mak Wai-kwong. (Photo by Leung Wai-kuen)

Senior Superintendent of the Commercial Crime Bureau Hung Hing-hoon pointed out that the SFC issued a warning statement on the 13th of this month, saying that JPEX was not licensed by the SFC and its operation was highly suspicious. The Police received a referral from the SFC the following day (14 December) and followed up by the Commercial Crime Bureau. The Police took the incident seriously and immediately set up a hotline to appeal to suspected victims to report the crime through the hotline and the e-Report Centre. After the CSRC issued a warning statement, JPEX increased the handling fee to 1USDT under the premise that the withdrawal limit was 000,999USDT, restricting withdrawals in disguise. At midnight on September 9, JPEX removed the wealth management page and stopped all transactions.

As at 10:1 pm last night, a total of 641,1 victims, including 129,512 males and 18 females, aged between 49 and 11, had been reported to the Police, involving a total of about HK$87,<> million.

Senior Superintendent of Commercial Crime Bureau Hung Hing Hoon (Photo by Zuo Langxing)

Superintendent Lee Mu-yin of the Commercial Crime Bureau pointed out that the police investigation revealed that JPEX used advertising, media, OTC and KOL promotions to attract investors, and users could exchange different cryptocurrencies on the platform after registration, or transfer virtual assets from foreign platforms to JPEX accounts for trading. JPEX also issues a platform coin called "JPC", but JPC cannot be traded on other platforms and cannot be used for payment, and the liquidity is extremely "not worth money at all". Users are lobbied to buy JPC as a "pledge" similar to a time deposit, claiming that they will receive extremely high returns upon maturity. JPEX also asked for the private key of the cryptocurrency for safekeeping, and the investigation found that JPEX basically controlled the user's assets. In addition, after the CSRC issued a warning statement on September 9, JPEX also restricted user withdrawals in disguise. Considering JPEX's mode of operation, publicity tactics and users' inability to withdraw their virtual assets, the Police have reasonable grounds to suspect that the persons concerned are suspected of conspiracy to commit fraud.

Superintendent of the Commercial Crime Bureau of the Police Lee Mu-yin (Photo by Zuo Langxing)

The Police said that as the incident involved huge public interests, the Commercial Crime Bureau conducted various investigations and confessions from deceived members of the public in recent days, and yesterday (18th) launched Operation Codenamed "Iron Pass", arresting 4 men and 4 women (aged 22 to 52) on suspicion of "conspiracy to defraud", including the heads and staff of suspicious companies and OTCs. The investigation is still ongoing and more arrests cannot be ruled out. As to the reasons for the arrest, Superintendent of the Commercial Crime Bureau Lee Mu-yin said that it was out of the role of the arrested persons and believed that they had participated in the "Tai Investor" into the scam.

During the operation, the Police also searched various premises, including the residence of the replaced persons and various OTCs, and seized a total of about $800 million in cash, luxury jewellery, telephones, computers and JPEX-related documents. The Commercial Crime Bureau also conducted financial investigations on the arrested persons and related companies, freezing bank balances totalling about HK$1 million, and carried out relevant procedures to freeze three properties with a total value of about HK$500 million, and considered confiscating the proceeds of the crime of over HK$3 million.

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When asked if there were artists suspected of being related to the case had left Hong Kong for Malaysia, the Police said that the investigation was still ongoing and that corresponding actions would be taken according to the degree of involvement of the person concerned and their role in the case, and if someone really committed a crime, the relevant person would be extradited from abroad to Hong Kong if necessary.

Wong Lok Yan, Director of the Licensing Division and Head of Fintech Unit of the SFC, said that in 2017, it has begun to focus on the virtual asset sector, of which the central virtual asset trading platform is the more common virtual asset service that poses the highest risk to investors, but the SFC does not have the power to force the virtual asset trading platform to be regulated. By 2019, the CSRC implemented a voluntary framework to encourage relevant platforms to be regulated, but it was still unable to force platforms to be regulated. In July 2022, the SFC added JPEX to its list of unlicensed companies and suspicious websites, and has issued more than nine reminders in the following year to alert investors to be aware of the risks of unlicensed and overseas trading platforms.

Huang Lok Yan, Director of Licensing Division and Head of Fintech Division of the SFC (left) (Photo by Zuo Langxing)

In December 2022, the Hong Kong government amended the Anti-Money Laundering Ordinance to include the provision of virtual asset trading platform services within the regulatory powers of the SFC, and the virtual asset trading platform system came into effect on 12 June this year, and all central virtual asset trading platforms operating in Hong Kong must apply for a license from the SFC and be subject to supervision. When the SFC issued a warning to the public on August 6 against the risks of trading assets on unregulated virtual trading platforms, and reminded some of the platforms claiming to have licensed or licensed platforms, but still did not name JPEX at that time, when asked whether it was too late for the SFC to disclose JPEX's name after media reports, Wong said that the SFC had already started the investigation, but the investigation would take time, and they were particularly nervous about JPEX's active promotion methods, so they immediately referred them to the police when they saw suspected fraud. Wong also urged the public to only use licensed and regulated trading platforms for trading.

Senior Superintendent of the Commercial Crime Bureau Hung Hing-hoon said that in relation to the incident, the Police had found that most of the victims were inexperienced investors, and hoped to remind the public of the important matters of cryptocurrency and virtual asset investment, including not blindly believing in the so-called "authority", doing their own homework, understanding the relevant products and how the virtual assets they invest in work, clearly understanding the characteristics and risks of the products, and carefully evaluating and selecting appropriate products according to their own investment objectives and risk tolerance. Don't act impulsively because of fear, and don't ignore risk by pursuing overly ideal returns. Kong Qingxun also pointed out that investors trading on unregulated platforms and handing over cryptocurrency private keys to the platform for safekeeping, disguised as putting their own property into the traps of others, once fraudsters escape, technical investors will fall into the situation of "wealth to singles". She called on investors to be cautious in making any investment decisions.

Police remind that if you suspect that you have been deceived or have questions about the deception case, you can call the Anti-Deception Hotline of the Police Anti-Deception Coordination Centre at 18222 or go to the nearest police station for assistance, or you can use the Police's "Anti-Deception App" to check the risks of suspicious phone calls, emails, websites, etc.

Lin Zuo was arrested

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KOL "Chen Yi" was arrested

The police seized a large amount of cash and evidence

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The CSRC issued a statement last Wednesday (13th) pointing out that none of the entities of the virtual asset trading platform JPEX have been licensed by the SFC, and have not applied to the SFC for a license to operate a virtual asset platform in Hong Kong. At the same time, the SFC also pointed out that JPEX and those who actively promote JPEX to the Hong Kong public and the methods used by money changers were observed. Yesterday (18th), the police immediately took arrest action, but JPEX issued a statement in the evening, pointing out that the SFC continued to treat unfairly, and pointed out that the SFC's statement had made the platform into operational difficulties, but stressed that it would continue to operate unswervingly even in the face of a series of challenges.

The Police said yesterday that on 9 September, they received a referral from the SFC and were followed up by the Commercial Crime Bureau (CCB), and after investigation, four men and two women were arrested in various districts on 14 September on suspicion of "conspiracy to defraud" and are now being detained for investigation. The operation is still ongoing, and more arrests cannot be ruled out. Today's latest news indicates that the police have arrested a total of 9 people so far.

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