Hong Kong police arrested six people on Monday for allegedly conspiring to defraud the public in connection with an ongoing investigation of crypto exchange JPEX, according to multiple reports.
The reports allege that up to HK$1 billion (approximately $128 million) worth of assets may be involved. The arrests, which included social media influencers Joseph Lam Chok and Chan Wing-yee, followed more than 1,400 complaints alleging fraud at JPEX, the South China Morning Post reported Monday.
On Sunday, JPEX announced that it had suspended some trading amid the broader probe into whether the firm has been misleading about its licensing and other issues.
The firm said in a blog post that JPEX users would not be able to place new orders on its Earn Trading interface. JPEX attributed the decision to the investigation, which prompted third-party market makers to freeze funds, restricting the exchange’s liquidity and creating other “operational difficulties.”
JPEX, which called its treatment by Hong Kong institutions “unfair,” said it was negotiating with the market makers to resolve the cash flow shortage “as soon as possible and” would “gradually adjust the withdrawal fees back to normal levels.” Existing Earn orders will continue until they reach their end date.
The police investigation comes less than a week after the city’s primary financial regulator, the Hong Kong Securities and Futures Commission (SFC), accused JPEX of stating deceptively on its website and in advertorials that it had obtained foreign licenses to operate as a virtual asset trading platform (VATP). JPEX has been on the SFC’s investor alert list since July 2022, which urged investors to exercise extreme caution.
In a September 13 statement, the SFC also alleged that through key thought leaders and over-the-counter crypto money changers (“OTC Shops”), JPEX had suggested that it had applied for a Hong Kong VATP license either independently or via a partnership with a Hong Kong-listed company. “The SFC wishes to make it clear that no entity in the JPEX group is licensed by the SFC or has applied to the SFC for a license to operate a VATP in Hong Kong,” the agency said.
Earlier this year, Hong Kong announced new rules to make retail investing easier and nurture the city’s reputation as a crypto hub. It is one of several cities looking to fill an anticipated void as U.S. regulators seem likely to crack down on the cryptocurrency industry.
JPEX joins a growing list of exchanges that are facing regulatory and law enforcement scrutiny. In June, the U.S. Securities and Exchange Commission (SEC) sued Binance, the operating company for Binance.US and Binance founder and CEO Changpeng “CZ” Zhao, for allegedly violating federal securities laws, and filed a similar suit against Coinbase. Both platforms have contested the filings.