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Hong Kong, Macau authorities arrest more JPEX scam suspects

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Authorities in Hong Kong and Macau continue to arrest more individuals linked to the scandal-plagued JPEX digital asset exchange.

On September 29, police in Hong Kong and Macau announced four more arrests stemming from the apparent rug-pull by the Dubai-based JPEX, which left over 2,400 Hong Kong-based customers fearing a combined loss of HKD1.5 billion (US$191.5 million) in assets held on the exchange.

Macau Business reported that two Hong Kong residents suspected of involvement in the scam had been detained in the special administrative region of China that is the world’s largest casino hub. The two men had over HKD6.5 million ($830,000) in casino chips, along with some cash and luxury watches on their person, with another HKD3 million on account with an unspecified casino. Authorities previously froze HKD5.2 million in a casino account belonging to another JPEX-linked individual who remains at large.

That same day, the South China Morning Post reported that authorities in Hong Kong arrested two other men, one of whom was caught in the process of attempting to destroy documents in his apartment bathtub using paper shredders and bleach. Around HKD8.7 million in cash and gold was seized during the Hong Kong arrests.

The total number of individuals detained in connection with JPEX now stands at 18. Hong Kong police stressed that while they believed some of the newly detained individuals are “close to the core” of the JPEX fraud, there was still “massive investigation work that needs to be done.”

JPEX had been catering to local residents for some time before Hong Kong’s Securities and Futures Commission (SFC) warned residents on September 13 that JPEX was operating without the SFC’s approval. JPEX, whose domain had been placed on the SFC’s Alert List in July 2022, had also issued fraudulent statements implying partnerships with local companies.

JPEX offered customers annual returns of up to 21% via the exchange’s ‘savings products,’ which enticed customers to purchase and store various tokens with JPEX. The exchange enlisted HK social media influencers to promote these and other products, with some influencers also participating in the scam via their own over the counter (OTC) trading desks.

But customers soon realized that, while getting assets onto JPEX was easy, getting assets off the exchange was far more difficult. Spooked by the SFC warning, customers tried to withdraw funds from their JPEX accounts, which led JPEX to impose $1,000 limits on withdrawals of USDT (Tether) stablecoins with new withdrawal fees of $999. (You do the math.)

JPEX claimed at the time that unspecified “third-party market makers have maliciously frozen funds” following JPEX’s “unfair treatment” at the hands of the SFC. JPEX further claimed that it was left with no choice but to impose the new fees, which it claimed would “gradually” return to normal levels as JPEX “recover[ed] liquidity.”

But in the week following the September 13 announcement, blockchain analytics firm Bitrace found that 7.2 million USDT had been transferred out of JPEX wallets. Bitrace previously claimed that 22% of the USDT held in one JPEX wallet was linked to online gambling, money laundering and other black-market activities.

Asleep at the switch

The SFC has been heavily criticized in the wake of the JPEX debacle for taking little to no concrete action while ‘crypto’ crooks operating without a local license fleeced local residents.

Criticism also came from JPEX. Following the SFC’s September 13 announcement, JPEX issued a flurry of blog posts slamming the regulator for allegedly failing to “fulfill its promises” in regards to processing JPEX’s application for a Hong Kong virtual asset service provider (VASP) license.

However, while JPEX publicly claimed in February that it “planned to apply” for a VASP license, there’s no evidence it ever did. In response to the JPEX debacle, the SFC published a list of its two VASP licenseesWanxiang Blockchain Labs offshoot HashKey and BC Technology Group’s OSL—and a grand total of four pending applications, with JPEX’s name nowhere to be found.

Also missing in action on the applicants list were other prominent ‘crypto’ entities that made highly public pronouncements about their intentions to seek VASP approval but never followed through. These include the likes of Binance, which let the media know in March that it was hiring new staff to ensure compliance with HK’s new regime, but as usual, this was all smoke and no flame.

Similarly, perpetual scammer Justin Sun said in June that his Huobi exchange had submitted its HK application in late-May, a lie that was exposed by the SFC’s recent revelations. If past is prologue, Sun and Binance boss Changpeng ‘CZ’ Zhao will issue future statements that claim the wheels are in motion and they just can’t wait to join the ranks of the newly licensed, but it will all be so much bull$hit.

Meanwhile, Huobi runs an office from Hong Kong and Binance cites Hong Kong as the jurisdiction whose laws govern its relationships with customers, including arbitration of complaints. This is likely intended to encourage customers to infer that these exchanges have some sort of relationship with local regulatory agencies and would face repercussions should they screw over their customers, when the reality is quite the opposite.

There’s no question that tolerating this kind of regulatory subterfuge makes the SFC and other Hong Kong agencies look weak. But this perception will seem downright flattering compared to the rage unleashed as more local residents fall victim to crypto rug-pulls and other scams. In the case of Binance, which is expecting to face serious criminal charges in the U.S. at any moment, Hong Kong customers’ losses would dwarf the losses from JPEX.

Regulators and other state authorities need to start acting like the responsible ‘adults in the room’ they claim to be. The members of the Crypto Crime Cartel have demonstrated time and again that they will ignore all warning shots fired across their bows. Regulators can either use the powers at their disposal now or accept future blame as the hapless bureaucrats who did nothing while the citizens they were supposed to be protecting got hurt on their watch. The choice is yours.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of group—from BitMEX to BinanceBitcoin.comBlockstreamShapeShiftCoinbaseRipple,
EthereumFTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

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