Hong Kong police are investigating allegations of fraud against cryptocurrency trading platform JPEX after investors complained of HK$1.3bn ($166m; £134m) in losses.
This week, eleven people, including popular influencers, were arrested following the filing of complaints by 2,000 individuals. According to local media, the case could be one of Hong Kong's largest fraud cases.
As Hong Kong positions itself as a global center for virtual assets, it also experiments with new financial regulations. Hong Kong's Securities and Futures Commission (SFC) disclosed last week that Dubai-based JPEX had been trading virtual assets without a license.
The platform, on the other hand, stated that it had "attempted to comply" with the local requirement that went into effect in June of this year, but the Commission "dismissed or sidestepped its efforts with official rhetoric."
According to police, many of the complainants are inexperienced investors who were assured high returns. In addition to targeting influencers, JPEX extensively advertised Hong Kong's MTR train system with enormous billboards.
Local television footage showed police escorting Joseph Lam, one of the arrested influencers, to a vehicle following a raid on his home.
Mr. Lam, a former attorney who now sells insurance, describes himself on Instagram as Hong Kong's "Trolling King." Mr. Lam illustrated in his posts how Bitcoin profits could help his followers purchase a home and increase their social standing.
Chan Yee, a YouTube personality with 200,000 subscribers, was also detained. Since the arrests, some JPEX trading operations have been suspended in Hong Kong, and the city's authorities appear to have blocked web access to the exchange.
In response to user complaints that they cannot withdraw their funds, the platform has also stated that it is working to rectify a "liquidity shortage." John Lee, the chief executive of Hong Kong, stated that regulators will monitor the situation closely and ensure investors are adequately protected.
He told sources that this incident demonstrates the importance of only investing in licensed platforms when investing in virtual assets.
Since June of this year, the SFC has been required to license virtual asset trading platforms.
This is a consequence of the amended Anti-Money Laundering and Counter-Terrorism Financing Act of late 2022, which sought to reassert Hong Kong's status as a global financial center.
Hong Kong is one of the financial capitals of Asia, and since its surrender to China in 1997, it has become a gateway for mainland investors. Now, it is attempting to establish itself as a center for Web 3.0 technologies, including cryptocurrency trading.
Since late 2021, China has prohibited cryptocurrencies on the mainland, claiming they "seriously endanger the security of people's assets."
According to its website, JPEX is licensed to facilitate the trade of digital assets in the United States, Canada, and Australia. Its main office is located in Dubai, United Arab Emirates.
The website's About Us section displays indistinct images of what appear to be licenses from the three countries.
JPEX, founded in 2020, stated that it handled $2 billion worth of assets and intended to be one of the five largest virtual asset exchanges in the world.
Mr. Chen posted on social media a week ago, following Hong Kong regulators' assertions that JPEX was operating without a license.