FTX Reappearance? JPEX Embezzles User Assets and Is Involved in a High-Value Fraud Case

JPEX involved in high-value fraud case, embezzling user assets; FTX reemerges?

Author: Meta Era, 237

On September 18, 2023, KOL Lin Zuo was arrested by the Hong Kong police for suspected involvement in the cryptocurrency trading platform JPEX conspiracy. At the same time, KOL Chen Yi was also taken into custody by the police for the same reason. In addition to these two individuals, six other people were arrested. According to official reports, the eight individuals arrested in this case include four men and four women.

It is reported that this case has involved more than 1,400 victims, with a total amount of 1 billion yuan involved. For a while, this high-profile cryptocurrency exchange fraud case shocked the whole of Hong Kong.

• Behind the Balancer attack incident In addition to the downsizing of the security team, we should pay more attention to the hidden concerns of centralized front-ends.
• Where are the criminal risks of crypto market makers?
• Telegram against MetaMask It is not only a battle for Web3 traffic entrance, but also a battle between Web2 and native encryption.

And all of this started with the Securities and Futures Commission (SFC) naming on September 13.

SFC Warning Statement

On September 13, 2023, the Securities and Futures Commission of Hong Kong (SFC) issued a warning statement titled “Concerning Unregulated Virtual Asset Trading Platforms”. The SFC stated that it had noticed a virtual asset trading platform called “JPEX”, and none of the companies under this platform group had obtained a license from the SFC, nor had they applied for a license to operate a virtual asset trading platform in Hong Kong.

The SFC pointed out six suspicions regarding JPEX:

1. JPEX claimed on its website that it is a “licensed and recognized digital asset and cryptocurrency platform”. It claimed to have obtained licenses to operate virtual asset trading platforms from several overseas regulatory agencies, which is actually not true.
2. JPEX offers extremely high returns for some of its products.
3. The SFC has received complaints from retail investors and noted media reports indicating that retail investors have been unable to withdraw virtual assets from their accounts opened with JPEX, or have found their account balances reduced and altered.
4. Some of the products offered by JPEX appear to involve arrangements related to virtual assets, such as virtual asset “deposits”, “savings”, or “earnings”, which are not allowed under the SFC’s regulatory regime for virtual asset trading platforms.
5. JPEX has promoted on its website and in local editorial-style advertisements that it has entered into a business partnership with a Hong Kong-listed company and received investment from that company, when in fact, the collaboration has been terminated and the listed company has not made any investment.
6. Internet celebrities and off-exchange currency exchange shops have made false or misleading statements on social media, claiming that JPEX has independently or jointly with a Hong Kong-listed company applied for a license to operate a virtual asset trading platform in Hong Kong, when in fact, no entity under the JPEX group has ever submitted an application for a license to the SFC for a virtual asset trading platform.

Suspicions about Withdrawals

In fact, apart from the mention by the Hong Kong Securities and Futures Commission, JPEX has long been plagued by various issues. One of the most widely circulated rumors is that JPEX is unable to process withdrawals.

According to on-chain data, several withdrawal addresses related to JPEX did not record any fund transfers for more than 7-8 hours at one point. Screenshots from JPEX’s official Discord community members also indicate that the withdrawal limit on the exchange appears to be restricted to 1000 USDT, while the withdrawal fee is as high as 999 USDT. This means that users only receive 1 USDT in actual withdrawal.

On-chain records also show multiple withdrawals of 1 USDT, which are suspected to be withdrawal attempts by users.

Community members have started to provide feedback to the official team regarding this situation. The official response is as follows:

“In order to increase overall liquidity on the platform, we need to raise the fees for adjustment purposes.”

Once this news was revealed, it immediately caused panic among users. As a result of this incident, JPEX’s native token JPC also plummeted, falling by more than 20% within 24 hours.

False License

Previously, JPEX claimed to have licenses from multiple countries. However, investigations have revealed that the directors of JPEX in countries such as the United States, Canada, Australia, and Lithuania are different individuals. Furthermore, since its registration in 2020 and operation from 2021 until now, the actual person in charge and office location have never been disclosed.

Tracing back to the initial stage, JPEX claimed to be a registered company called JP-EX Crypto Asset Platform Pty Ltd based in Australia. According to records from The Australian Securities and Investments Commission, the company was established in September 2020, and the current directors and secretary are named Jiayi CHEN. In addition to this, JPEX also registered another company in Australia called JPEX Technical Support Co. Pty Ltd, but this company was deregistered in 2022 and was also mentioned by the Hong Kong Securities and Futures Commission.

In addition, in the early stages, JPEX has always tried to present itself as a Japanese cryptocurrency exchange and promote itself through celebrities and internet celebrities. However, the Japanese Financial Services Agency has stated that JPEX is not listed as a cryptocurrency exchange.

In the Americas, JPEX has registered companies in the United States and Canada, namely JP-EX Crypto Asset Bank and JP-EX Exchange Limited, respectively. However, it is suspicious that JPEX’s US company is registered in Denver, Colorado, but has not registered any directors, only a registered agent company called Zhongteng Accounting Co., LTD, with the contact person being Weihan WANG. In Canada, although the company has registered directors, the directors have the same name as the contact person of JPEX’s US company, and the registered address is different.

Currently, specific information about Weihan WANG cannot be confirmed. However, during the investigation, we found that although JPEX claims to have obtained licenses from Australia, the United States, Canada, and other countries, these licenses are not for operating an exchange but for registration required for foreign exchange and finance.

Turning our attention to Europe, JPEX claimed in June 2022 that it had obtained a cryptocurrency license in Lithuania, and its registered company in the local area is called JP-EX Crypto Asset Platform UAB. However, after investigation, it was found that the company is just a regular limited liability company and has been deregistered in July this year. JPEX’s official website also no longer shows any trace of obtaining a Lithuanian license.

Finally, let’s return to Hong Kong. In July 2021, JPEX established a company called JPEX Technical Support Co. Pty Ltd, which was renamed Web3.0 Technical Support Limited in April 2022, with the director named Guo Haolin. It is reported that in addition to JPEX, Guo Haolin also serves as a director of CoinLedge Limited and Crypto Wesearch Media Limited. The former is a technology and finance website, while the latter is a blockchain information website. Regarding Guo Haolin, some reporters have tried to interview him at his address but no one answered the door.

Empty Booth

On September 13th and 14th, the Web 3.0 Summit Token2049 was held in Singapore. To welcome this grand event in the cryptocurrency industry, JPEX specially launched the “Catch Bitcoin” activity. During the event, participants only needed to find JPEX’s booth at Token2049 and complete the designated tasks to participate in the capsule toy draw and the “Catch Bitcoin” activity. However, when we arrived at the summit venue, we found that JPEX’s booth at Token2049 had already been completely cleared out.

In addition, there is also the Asia Blockchain Building located in the core area next to SOGO in the east district.

In mid-June this year, the JPEX Asia Blockchain Building, with a monthly rent of 3.4 million, was heavily promoted by JPEX, and JPEX officials once boasted that they would build it into the core base of the Asian blockchain. At that time, each of the 13 floors of the building was carefully planned, including a cafe, VIP lounge, shared office space, and even plans to create an exclusive music creation base for Taiwanese spokesperson Chen Lingjiu on the 9th floor.

However, in reality, since June, the interior of the JPEX Asia Blockchain Building has been under construction and unfinished, and now JPEX has been involved in a high-priced fraud case, and it is likely that the former ambition will turn into a bubble.

Official announcement, late arrival

Regarding the Hong Kong Securities and Futures Commission’s naming, licensing, and withdrawal issues, the JPEX official did not respond in a timely manner until September 14th, and the official announcement came late, stating:

Considering that the platform needs to make adjustments in terms of business and policy based on the statement issued by the Hong Kong Securities and Futures Commission, JPEX has adjusted the USDT withdrawal fee at 00:00 (GMT+8) on September 14, 2023.

In response to the above matters, the platform has established a special task force, which will be composed of professional legal professionals, former members of the Securities and Futures Commission, and elites from the financial industry to discuss future development directions and make adjustments, and await further guidance from the Securities and Futures Commission.

Based on the response of the Securities and Futures Commission, the platform will gradually adjust the withdrawal fee and gradually increase the withdrawal limit.

If users have an urgent need for withdrawal, they can fill out the form below to apply for priority withdrawal sorting, and the platform will arrange it as soon as possible to solve the needs of special users.

Through the above announcement, JPEX did not give a positive response to the focus issues such as excessively high withdrawal fees, suspected transfer of user assets, and licensing issues.

On September 15th, blockchain data analysis company Bitrace tweeted that the flow of funds behind the TRON addresses related to JPEX is opaque, and one of its hot wallet recharge addresses has received over 190 million risky USDT in the past 20 months. 22.04% of all funds are classified as risky funds, and the identified risk types include black-gray assets, online gambling, and money laundering.

As the situation continues to escalate, the cryptocurrency exchange CoinW announced in a statement late on September 15 that it will delist the JPC/USDT trading pair starting from 22:00 on September 15, 2023 (UTC+8).

Another announcement, delisting and restructuring

Despite JPEX’s response to the recent events in a statement on September 14, it has been unable to stop the worsening situation. At the same time, problems with withdrawals have yet to be resolved. Therefore, JPEX issued a special announcement again at 21:19 on September 17, stating:

Recently, due to unfair treatment by relevant institutions in the Hong Kong region towards JPEX cryptocurrency exchange platform, and the series of negative news they released, the third-party market makers that the platform cooperates with have temporarily locked funds and requested more information from the platform for negotiation, restricting the platform’s liquidity and significantly increasing our daily operating costs, resulting in operational difficulties.

JPEX also stated that due to the restriction of the platform’s liquidity by the third-party market makers and in compliance with policy guidelines, the platform will delist all transactions on the wealth management page starting from 00:00 on September 18, 2023 (GMT+8).

Meanwhile, the announcement also pointed out:

At this stage, it is necessary to restructure the architecture in order to redefine the operational direction.

JPEX claims that it will publicly collect user suggestions and discuss with a dedicated team to select reasonable proposals and conduct a user referendum.

Latest developments

As the situation continues to escalate, Hong Kong Chief Executive Carrie Lam met with reporters before the executive meeting on September 19, stating that the government has always been closely monitoring the JPEX case and emphasizing:

The government’s policy towards virtual assets is to have an effective regulatory system, to publicly disclose information related to virtual assets in a transparent manner, and to attach importance to and promote investor education.

In addition, Carrie Lam also mentioned that this incident fully reflects the importance of regulation, including the need to invest in regulated and licensed trading platforms and the importance of individuals’ understanding of virtual assets and related risks. She emphasized:

The current licensing system aims to safeguard investors, and the Securities and Futures Commission (SFC) will monitor market changes to ensure that investors’ interests are fully protected. The authorities will also vigorously promote investor education.

After the arrest operation on September 18, the Hong Kong police held a press conference immediately to brief the public on the case and its progress.

According to Meta Era, the Hong Kong police held a press conference at 4 pm on September 19 to announce the arrests and the latest progress of the investigation regarding JPEX. The Hong Kong police stated that due to the significant public interest involved in the case, the Commercial Crime Bureau conducted law enforcement actions and arrested eight individuals, four males and four females, including KOL Lam Zuo, who claimed to be a partner of JPEX.

As of last night, the Hong Kong police have received reports from 1,641 victims, involving an amount of approximately HKD 1.187 billion. The Commercial Crime Bureau has also conducted asset investigations on the arrested individuals and related companies, freezing bank balances of approximately HKD 15 million and three properties with a total value of approximately HKD 44 million.

However, compared to the progress of the case, the plight of JPEX victims is obviously of greater concern to society. According to Hong Kong Sing Tao Daily, lawyers are not optimistic about the situation of JPEX victims. Chen Tingqian, a lawyer specializing in financial market regulation and virtual assets, said in an interview:

The current difficulty lies in not knowing which legal entity of JPEX holds the clients’ assets, nor the jurisdiction of that legal entity. At present, Hong Kong users may face certain difficulties if they consider filing civil claims.

However, Chen Tingqian pointed out that besides the company, if there is sufficient evidence showing illegal or breach of contract behavior by individuals, depending on the relevant evidence and case circumstances, it is also possible to make civil compensation claims against these individuals.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!