The burst of the JPEX bubble and the lessons learnt



Hong Kong has always been a thriving global financial hub. However, no financial market is immune to risks, as exemplified by the recent allegations involving the cryptocurrency exchange JP-EX Crypto Asset Platform Pty Ltd (“JPEX”). This article follows up on our September issue on the regulation of decentralized autonomous organizations (click here), and examines the JPEX incident together with certain remedies by the Securities and Futures Commission (“SFC”).

Who is JPEX and how did JPEX do it?

According to the official website of JPEX, it was established in 2019 with its “operational headquarters” located in Dubai and proclaimed to have obtained relevant financial licenses from the United States, Canada and Australia. It has dominated headlines with flashy promotions, as evidenced by the large-scale advertisements in MTR and celebrity endorsements. JPEX also appeals to users with its diverse range of services and unique offerings, such as spot trading, futures contracts, savings accounts, and Non-Fungible Token (NFT) contract trading and gaming platforms in the metaverse, which is considered almost one-of-a-kind in the current market.

JPEX has also made a number of assertions that have subsequently all proven to be inaccurate or even completely false (see below). Apart from claiming to be licensed, the reference to “Japan Exchange” in their promotional materials also causes the public to associate JPEX with Japan Exchange Group (“JPX”), the stock exchange of Japan. Coupled with the unusually high return rate, the promotion by social media influencers, “key opinion leaders” (KOLs) and over-the-counter virtual asset money changers (“OTC”) have together lured a significant number of individuals to put their money with JPEX.

The downfall of JPEX

SFC’s statements

JPEX has been caught on the radar of the SFC as its name was added to the Alert List of Suspicious Virtual Asset Trading Platforms (the “Alert List”) on 8 July 2022. The naming on the Alert List was followed by investor alerts published by the SFC and its Investor and Financial Education Council on JPEX’s promotional materials, against dealing with unlicensed platforms and related malpractices. More recently, the SFC issued a warning statement against JPEX on 12 September 2023 (“SFC 1st Statement”) to reinstate that no entity in the JPEX group is licensed by the SFC or has applied to the SFC for a licence to operate a virtual asset trading platform (“VATP”) in Hong Kong. Six suspicious features about the practices of JPEX were also observed by the SFC, unravelling the truth behind certain appealing features of JPEX as widely advertised. These features include:

1.       JPEX falsely states on its website that it is a “licensed and recognised platform to facilitate the trading of digital asset and virtual currency”;


2.       JPEX offers very high returns;


3.       The SFC has received complaints from retail investors who were unable to withdraw virtual assets or had found their account balances reduced;


4.       JPEX falsely states that it had entered into business cooperation with and received investment from a Hong Kong listed company, when, in fact, the cooperation has already been terminated and no investments were made by the listed company;


5.       The arrangements involving “deposits”, “savings” or “earnings” are not allowed under the SFC’s regulatory regime for VATPs, as per paragraph 7.26(b) of the Guidelines for Virtual Asset Trading Platform Operators which provides that a platform operator should not make any arrangements with its clients on using the client virtual assets held by the platform operator or its associated entity with the effect of generating returns for the clients or any other parties; and


6.       Advertisements by KOLs and OTC Shops falsely suggest that JPEX has applied for a VATP licence in Hong Kong.


One may notice that these suspicious features are almost identical to the attractive features identified above. It also transpires that JPEX has not secured any licenses for virtual currency regulation from the Japanese Financial Services Agency and is not listed as a registered company with JPX.

Very soon after the publication of the SFC 1st Statement, SFC issued a second statement against JPEX on 20 September 2023 (“SFC 2nd Statement”), declaring that JPEX’s publication of confidential correspondence between the SFC’s Enforcement Division and JPEX is a breach of section 378 of the Securities and Futures Ordinance, Cap 571 and section 76B of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, Cap 615 (“AMLO”) which impose an obligation on a person assisting the SFC in a statutory enquiry or investigation to preserve confidentiality for any matter coming to its knowledge.

The arrest

As of 11 October 2023, the Hong Kong police have arrested a total of 28 people, including multiple Hong Kong KOLs who were allegedly involved in suspected fraud with more than 2,500 victims and losses of over HK$1.56 billion. The offences involved are:

1.       s53ZRF of the AMLO: by directly or indirectly, in a transaction involving any virtual assets: (i) employs any device, scheme or artifice with intent to defraud or deceive, or (ii) engages in any act, practice or course of business that is fraudulent or deceptive, or would operate as a fraud or deception.


2.       s53ZRG of the AMLO: by making any fraudulent misrepresentation or reckless misrepresentation for the purpose of inducing another person to enter into, or offer to enter into, an agreement to acquire, dispose of, subscribe for or underwrite any virtual assets.

Existing measures by the SFC

The JPEX incident calls for an examination of the existing measures implemented by the SFC to combat unlicensed VATPs, the following sets out a non-exhaustive list of the same:

1.       Alert List: The Alert List is a list of entities that have come to the attention of the SFC because they are unlicensed in Hong Kong and are believed to be, or to have been, targeting Hong Kong investors or claim to have an association with Hong Kong.


2.       Complaint forms: Individuals or corporates can also file complaints via complaint form(s) made available on the SFC website. However, it is just a general complaint form for complaints to the SFC about intermediaries’ conduct, public offerings of securities, market misconduct, listed companies misconduct or takeovers etc., which are not exclusive to VATPs.


3.       Circulars and guidelines: The SFC has also issued a circular on the implementation of the licensing regimes under the SFO and the AMLO and a circular on the transitional arrangements under the AMLO.

New measures by the SFC

On 29 September 2023, the SFC published the following lists to inform the public of the regulatory status of VATPs with the hope of enhancing transparency in light of the JPEX incident:

1.       List of licensed virtual asset trading platforms: providing the names of VATP operators which are formally licensed by the SFC.


2.       List of virtual asset trading platform applicants: providing the names of VATP operator applicants whose licence applications have yet to be approved by the SFC. Note that simply being an applicant does not indicate compliance with the AMLO or other relevant guidelines.


3.       List of applicants whose licence applications have been returned, refused or withdrawn.


4.       List of closing-down virtual asset trading platforms: providing the names of VATP operators required by law to close down within a specified period. These entities are not allowed to provide their services and are required by the SFC to cease all marketing activities which target Hong Kong investors.


5.       List of virtual asset trading platforms which are deemed to be licensed as of 1 June 2024.

Key takeaways

The JPEX incident serves as a wake-up call for Hong Kong’s financial sector, highlighting the importance of effective regulatory oversight and investor protection. While the SFC’s swift actions in response to the incident demonstrate its commitment to safeguarding investor interests and enhancing transparency, individuals shall exercise caution, remain vigilant and conduct thorough research especially when the VATPs are heavily endorsed by KOLs.  


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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2023

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