Warning statement on unregulated virtual asset trading platform

The Securities and Futures Commission (SFC) is aware that a virtual asset trading platform (VATP) known as "JPEX" has been actively promoting its products and services to the Hong Kong public through social media influencers and key opinion leaders (KOLs) as well as over-the-counter virtual asset money changers (OTC Shops) (Note 1).

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 licence to operate a VATP in Hong Kong.

The SFC has also observed a number of suspicious features about the practices of JPEX and those actively promoting it to the Hong Kong public:

(a) JPEX states on its website that it is "a licensed and recognised platform to facilitate the trading of digital asset and virtual currency". It claims on its website and local advertorials to have obtained licences from certain overseas regulators to operate VATP, which is in fact not true (Note 2).

(b) JPEX offers very high returns for some of its products (Note 3).

(c) The SFC has received complaints from, and notes that there have been media reports of, retail investors who were unable to withdraw virtual assets from their accounts maintained with JPEX, or had found their account balances having been reduced and altered.

(d) Some of the products offered by JPEX appear to be arrangements involving virtual assets such as virtual asset "deposits", "savings" or "earnings" which are not allowed under the SFC's regulatory regime for VATPs (Notes 4 and 5).

(e) JPEX publicised on its website and local advertorials that it had entered into a 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 actually made by the listed company.

(f) KOLs and OTC Shops have made false or misleading statements on social media to suggest that JPEX has applied for a VATP licence in Hong Kong, either independently or in partnership with a Hong Kong listed company, when in fact no entity in the JPEX group has submitted any VATP licence application to the SFC.

The SFC has notified the relevant KOLs and OTC Shops of the SFC's suspicions and concerns and requested them to cease promoting JPEX and its related services and products.

Under section 53ZRF of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), a person commits an offence if the person, 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 (Note 6).

Under section 53ZRG of the AMLO, a person commits an offence if the person makes 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 (Note 7).

The SFC is also empowered by section 53ZTH to take action against any persons who are knowingly or unknowingly involved in contravention-related conduct under the AMLO.

The SFC will not hesitate to take enforcement action against individuals and entities who fail to abide by the VATP regime administered by the SFC, including those who are involved in such violations.

The SFC takes this opportunity to warn investors to be cautious about investment opportunities that seem too good to be true. Investors should be sceptical of investment advice posted on social media platforms and instant messengers by KOLs who are often paid promoters but not investment professionals.

Once again, the SFC warns investors to be wary of the risks of trading virtual assets on an unregulated VATP. Investors may risk losing their entire investment held on the VATP if it ceases operation, collapses, is hacked or otherwise suffers from any misappropriation of assets. Seeking recourse against platforms that do not have a nexus with Hong Kong is likely to be difficult and legal remedies may not be available. If in doubt about the licensing status of any VATP, please refer to the SFC's list of licensed virtual asset trading platforms.

Notes:

1. JPEX is a VATP operating at the website of jp-ex.io, which has been placed on the SFC's Alert List since 8 July 2022.
2. While JPEX is registered as a business or entity with certain overseas regulators, these registrations do not constitute approval or licences to allow virtual asset trading services to be legally provided in those jurisdictions. JPEX claims on its website that its operating headquarters is located in Dubai and under the supervision of the Virtual Assets Regulatory Authority of Dubai (VARA), its trading system "has stricter regulatory standards and more transparency and openness in cross-border transactions", but JPEX is not on the public list of licensed virtual assets service providers published by VARA.
3. For example, as at 12 September 2023, JPEX's savings product offered 21% annual percentage yield (the rate of interest/return earned in one year) for ETH, 20% for BTC and 19% for USDT according to its website at jp-ex.io.
4. Paragraph 7.26(b) of the Guidelines for Virtual Asset Trading Platform Operators 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.
5. Pursuant to section 53ZRK of the AMLO, the SFC may grant a licence to an applicant only if the SFC is satisfied, among other things, that the applicant is a fit and proper person to be licensed for the virtual asset trading service. If JPEX makes any application for a VATP licence, the SFC will take into account whether it has been involved in providing services and products that may not comply with the applicable legal and regulatory requirements, whether its involvement in such activities could have reasonably been avoided and whether it can demonstrate a genuine intention to rectify non-compliant activities, including gradually unwinding impermissible transactions in an orderly manner, all of which reflect the applicant's ability to provide the virtual asset trading service competently, honestly and fairly. The SFC takes a dim view of any continued promotion of non-compliant activities.
6. A person who commits this offence is liable: (i) on conviction on indictment, to a fine of $10,000,000 and to imprisonment for 10 years; or (ii) on summary conviction, to a fine of $1,000,000 and to imprisonment for three years.
7. A person who commits this offence is liable: (i) on conviction on indictment, to a fine of $1,000,000 and to imprisonment for seven years; or (ii) on summary conviction, to a fine at level 6 and to imprisonment for six months.