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Hong Kong: SFC, police form ‘crypto’ taskforce as JPEX converts to DAO

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Hong Kong’s police and securities watchdog have formed a new working group to crack down on crime in the cryptocurrency industry in response to the city’s largest financial scandal, JPEX.

The Securities and Futures Commission (SFC) announced the new task force amid new arrests in the JPEX case that brought the total number of people in custody for the scam to 20.

SFC partnered with the Hong Kong Police Force on the working group to investigate illegal activities related to virtual asset trading platforms (VATPs). The task force will comprise members of the police’s Commercial Crime Bureau, Financial Intelligence and Investigations Bureau, and the Cyber Security and Technology Crime Bureau. The SCF’s Enforcement and Intermediaries divisions will also be involved.

SFC says the working group will allow it to share information on suspicious VATP activities and breaches easily and quickly with the police. It will also implement a new mechanism to assess VATP risks.

“The implementation of the new platform between the Police and the SFC is instrumental to fast-tracking of vital intelligence exchange and joint collaboration in responses to the challenges arising from VATPs, so as to better protect the general public of Hong Kong,” commented Eve Chung, the Assistant Commissioner of Police (Crime).

While the new working group will play a big part in thwarting cryptocurrency scams in the future, it’s too late for the victims of JPEX. Based in Dubai, the exchange targeted Hong Kong investors before an SFC announcement that it was operating without a license sparked its collapse in September. Authorities say over 2,300 victims lost over $180 million in the scam.

The SFC has received most of the blame for the JPEX blowup. While it had issued nine warnings on exchanges operating without a license, it only singled out JPEX in its tenth warning.

“How would I know you are talking about my service provider if you do not name it?” posed one lawmaker who slammed the regulator for its “esoteric” messaging that was out of touch with the public.

JPEX turns into a DAO, and customers’ funds converted to ‘waste paper’

As authorities prepare to thwart future scams, JPEX customers cry foul after the exchange announced that it was turning into a DAO and converted all their tokens into “waste paper.”

In a Wednesday blog post, the exchange claimed that it conducted a referendum with its users on September 28, in which 68% voted for the plan. However, several users have told the South China Morning Post that the referendum was a sham and that there was no option to vote against the plan on the JPEX app.

The exchange has converted user funds into shareholder dividends in the new DAO, which can only be claimed in full after two years.

“All of my USDT [Tether tokens] and other cryptocurrencies are gone, all transferred to JPC [the platform’s own digital currency] … Some other users holding the tokens and other assets have also found them transferred,” one user told the Post.

Most users cannot withdraw the JPC tokens, and even the few who have don’t know the exchange rate for JPC, or if it holds any value at all.

“Given the unknown price and the impossibility of withdrawal, our assets have now become just waste paper,” according to one user.

JPEX maintains that it’s doing all within its power to refund users. The team is purportedly “actively negotiating with third-party market makers and aiming to release funds promptly.”

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