Hong Kong cryptocurrency exchange platform Greenstone Exchange (JPEX) triggered a joint investigation by securities regulatory authorities and the police due to some depositors being unable to withdraw their funds, with implications reaching Taiwan, sparking widespread discussions.
Hong Kong law enforcement stated that this “conspiracy to defraud” case has seen over 2,000 people reporting losses, involving HK$1.3 billion (US$166 million; 1.193 billion RMB; NT$5.315 billion). Among the 11 arrested suspects are well-known internet personalities (KOLs). A Taiwanese internet celebrity who endorsed the exchange expressed willingness to cooperate with the investigation.
The securities regulatory authorities publicly stated that JPEX does not have a license, but JPEX countered, accusing relevant Hong Kong government departments of “defamation” and claiming to “continue to operate steadfastly.”
Digital economy commentators told BBC Chinese that existing law enforcement measures might struggle to stop illicit virtual financial platforms, and existing laws are inadequate to protect depositors from losses.
The JPEX case has been dubbed by some Hong Kong media as the “largest financial fraud case in history,” but if other fundraising frauds are included, the Jardine Matheson corruption and fraud case spanning Hong Kong and Malaysia in the 1980s should also be considered. The Independent Commission Against Corruption of Hong Kong spent 17 years investigating the case, which involved HK$6.6 billion.
In July 2022, the Securities and Futures Commission (SFC), responsible for financial law enforcement, added two affiliated companies of JPEX to the “unlicensed companies and suspicious websites list” but did not take further action. In November of the same year, the global digital asset industry giant FTX filed for bankruptcy, sounding the alarm for the global cryptocurrency industry.
In December, the Legislative Council of the Hong Kong Special Administrative Region of China passed the “2022 Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance,” which will implement a “virtual asset trading platform licensing system” starting from June 1, 2023, supervised by the SFC. The new law stipulates that virtual asset trading platforms that were operating in Hong Kong before June 1 can continue to operate legally within the first year of the law’s implementation without violating the law but must apply for an SFC license to operate legally after the “grace period” ends.
Under the same law, anyone committing fraud involving virtual asset investment, if convicted by a court, can be sentenced to up to seven years in prison and fined HK$1 million.
As the new regulatory regime was about to take effect on May 26, JPEX launched a round of street promotional activities in Hong Kong, during which it began using the Chinese name “Greenstone Exchange.”
In early July, the well-known social platform LIHKG in Hong Kong had netizens claiming that a JPEX user from mainland China tried to withdraw funds but failed, was invited to Hong Kong for processing, and was ambushed upon arrival. Hong Kong police later confirmed this incident and issued warrants for four individuals. Rumors of JPEX’s collapse began to spread.
Around the same time, Lin Zuo claimed on social media that he had “applied to become a partner of JPEX” and held a public lecture at the end of July. The Ming Pao reported that Lin Zuo recommended JPEX and some cryptocurrencies at the event. In August, the SFC warned the public without naming names about improper practices by some virtual asset trading platforms.
On September 13, the SFC named JPEX and “persons actively promoting JPEX to the Hong Kong public and exchange shops” involving at least six suspicious operating practices. The next day, JPEX announced adjustments to its operations in response to the SFC’s statement, deciding to increase withdrawal fees. Some users subsequently posted trading screens online, claiming that withdrawal limits were restricted to 1000 USDT each time, with a fee of 999 USDT, almost offsetting the entire withdrawal amount.
USDT, known as “Tether” or “US Dollar Tether,” is a type of stablecoin pegged to fiat currency, in this case, the US dollar.
Two days later, the Hong Kong Monetary Authority – the de facto central bank of Hong Kong – publicly warned people to “beware of virtual asset institutions claiming to be ‘banks’ or claiming their products are ‘deposits’.” The SFC announced that the JPEX incident may involve fraud and has been referred to the police for further investigation. On September 17, JPEX claimed that its funds were locked by a third party and announced the “suspension of all transactions on the financial management page” from the early hours of the 18th.
On September 18, the Hong Kong Police Commercial Crime Bureau took action, arresting eight people, including Lin Zuo and Chen Yi, and searched multiple “cryptocurrency exchange shops.” Hong Kong Chief Executive Carrie Lam, who comes from a police background, told reporters that “this incident reflects fraudulent elements, so the police took immediate action and arrested relevant persons suspected of fraud.”
On September 19, the Commercial Crime Bureau and the SFC held a joint press conference. The SFC representative said that they had issued 21 warning letters requesting recipients to stop promoting JPEX, including the first eight arrested individuals. They also stated that before the warning issued on the 13th, JPEX had never contacted the SFC; the police representative said that some people involved claimed to “make money every day,” enticing investors by showing off luxury cars and accessories, and that JPEX’s own virtual currency, JPC, is only tradable on its platform and is “worthless.”
JPEX later released a statement accusing the SFC of “defamation,” claiming that the company had stopped operating its platform and published some communication records, stating that the claim of “never contacting the SFC” was untrue, and declaring that it would “continue to operate steadfastly.” From the night of the 20th to the early hours of the 21st, JPEX issued multiple statements claiming that its mobile application and website were “unreasonably blocked” by telecom operators. Several media outlets subsequently quoted sources as saying that the police requested telecom operators to block them.
On the night of September 20, the SFC stated that JPEX “publicly disclosed confidential communications between it and the Regulatory Enforcement Department,” violating the confidentiality provisions of the Hong Kong Securities and Futures Ordinance and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. According to relevant laws, violation of confidentiality constitutes a criminal offense, and if convicted by a court, the maximum penalty is two years’ imprisonment and a fine of HK$1 million.
The Hong Kong police announced that as of the evening of the 20th, they had received reports from 2,086 victims involving approximately HK$1.3 billion; the number of arrests for suspected “conspiracy to defraud” had increased to 11, and more arrests were not ruled out.
According to reports from Hong Kong media, Edison Chen, who appeared as a “JPEX spokesperson” in advertisements, had instructed JPEX in writing not to use his endorsement until it obtained a license to operate in Hong Kong. He stated that he would reserve the right to pursue JPEX. Hong Kong media also focused on another actor and model, Kama Lo, who was in Malaysia when the arrests occurred and claimed to be a victim herself. When asked by reporters if the Hong Kong police would extradite her back to Hong Kong, the police said that if a person involved committed a crime in Hong Kong, they would definitely be extradited back to Hong Kong from abroad. Kama Lo told Ming Pao that she would consult her lawyer and reserve her rights, and it is currently unknown whether this statement is directed at law enforcement or the media.
