Hong Kong JPEX crypto scandal: dividends plan by defiant platform prevents users from withdrawing assets
- Police arrest two more suspects linked to fast-growing case of alleged fraud involving more than HK$1.5 billion in assets
- Among the suspects is TV actor Cheng Chun-hei, 29, who was arrested around midday in Tai Po
The cryptocurrency platform at the centre of a growing HK$1.5 billion financial scandal has pressed on with a plan to convert stored user assets into shareholder dividends that can only be claimed in two years, while Hong Kong police have arrested two more suspects linked to the case.
In a related development, the securities watchdog said on Wednesday evening that it had set up a working group with police to allow closer collaboration on sharing information and investigating illegal activities related to virtual asset trading platforms.
The Securities and Futures Commission said the group would involve its enforcement and intermediaries divisions and three police bureaus.
Earlier on Wednesday, a user of the JPEX platform told the Post she and some other victims of the biggest local case of alleged digital currency fraud could no longer withdraw their assets, hours after the company announced it would proceed with the plan to boost cash flow and retain investors.
The user, who preferred to remain anonymous, said they were not told the exchange rate for JPC.
Tether is a stablecoin, a type of cryptocurrency designed to remain at a stable price point. Each USDT is worth US$1.
“Given the unknown price and the impossibility of withdrawal, our assets have now become just waste paper,” the user said.
The scandal surrounding Hong Kong’s biggest alleged case of financial fraud, involving assets worth more than HK$1.5 billion (US$191 million), emerged last month after the city’s securities watchdog named JPEX as an unlicensed platform, accusing it of suspicious activities.
In an announcement earlier on Wednesday, JPEX said a referendum it held with users was completed last week, with 68 per cent voting in favour of the dividends plan.
“As a platform, we highly respect the decision made by our users,” it said, adding that it had begun to “progressively implement” the “DAO Shareholder Dividend Scheme” starting on Wednesday.
DAO, or “decentralised autonomous organisation”, is an entity in which all members participate in decision-making through voting mechanisms on a blockchain.
“Currently, our team is actively negotiating with third-party market makers and aiming to release funds promptly for the platform’s [adjustment] work,” JPEX said.
“We also commit that, after the programme’s implementation, all profits apart from the dividend portion will be used for repurchasing DAO dividends held by users.”
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Under the plan, investors will convert their funds into DAO stakeholder dividends at a 1:1 ratio which can be claimed two years later. Those adding fresh assets under the plan were told they could get twice the payout.
The dividends to be given to users would be in various forms, including as listing fees of new platform tokens, trading fees generated by spot and derivative products, and corresponding JPEX coins based on the proportion of the shareholder’s dividends, the firm said.
The company also said earlier it would distribute 49 per cent of the stakeholder dividends, with a total value of US$400 million.
According to a JPEX statement, Tether tokens would be distributed to holders periodically based on their “dividend proportions”.
The company also said it would shift its operational style to a decentralised autonomous one, with voting rights to be granted to all those taking part in the dividend scheme.
“They will have the opportunity to participate in platform decision-making through public voting. Our approach is formulated and optimised with reference to a large number of past records,” JPEX added.
It also said it was working on introducing peer-to-peer trading and other measures to “increase platform revenue” to get more users involved in “improving the platform’s development direction and business strategies”.
“We strive to overcome the current challenges, complete the necessary adjustments, and continue providing high-quality cryptocurrency trading services to users worldwide,” it said.
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But users previously told the Post they had been forced to accept the plan since there was no option to vote against it on the platform’s app.
Financial analysts also slammed the scheme, calling it suspicious, and saying it would only be economically viable if there were prospects that the entity would deliver.
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Police picked up two more people linked to the case on Wednesday morning, bringing the total number of suspects arrested to 20.
One of the two is television actor Cheng Chun-hei, 29, who was arrested by officers from the commercial crime bureau around midday in Tai Po.
Cheng was hooded when he was later escorted by plain-clothes officers to Nam Hang Tsuen in the Tai Tong area of Yuen Long, where officers impounded his white Porsche.
A source familiar with the case said Cheng was an alleged member of a fraud syndicate behind the cryptocurrency platform and the vehicle was believed to have been bought with criminal proceeds.
The other suspect is a 28-year-old man who was escorted away from his flat at housing estate The Bloomsway in Tuen Mun, while officers also impounded his grey Porsche, according to the insider.
The force said earlier it had arrested people “relatively close to the core” of JPEX and was tracking down other fugitives in connection with fraud and money-laundering offences.
Police have received more than 2,400 complaints against the trading platform so far.
Louis Li Sze-chung, a blockchain expert and adviser to tech start-up association 852Web3, said investors basically could do nothing to protect their assets at this point. They could only rely on whether police could stop the platform from operating.
He said the dividends plan and shift to a DAO model were also unreasonable, adding he was not optimistic the platform would fulfil its promises to investors.
Additional reporting by Danny Mok
