JPEX Restricts Withdrawals, Converts User Balances to Non-Withdrawable Cryptocurrency: SCMP

By Tsunami 10/5/23 8:23 AM

JPEX, embroiled in a fast-growing case of alleged fraud involving over HK$1.5 billion in assets, has begun restricting withdrawals by converting user balances into a non-withdrawable cryptocurrency. This shocking development came to light through a report by The South China Morning Post on October 4, sending shockwaves through the cryptocurrency community.

Among the suspects arrested in connection with this case is 29-year-old TV actor Cheng Chun-hei, apprehended around midday in Tai Po. The arrest of such a high-profile individual only serves to underscore the gravity of the situation.

The report cited an unidentified user who claimed that her Tether (USDT) holdings, along with those of others, had been forcibly converted into JPC, JPEX’s proprietary token. This conversion rendered them unable to withdraw their cryptocurrency balances. JPC, which has an undisclosed price and is impossible to withdraw, has been described by the user as akin to “waste paper.” CoinGecko data confirms that JPC’s value has drastically plummeted, and it is not traded on any recognized exchanges.

Police have arrested TV actor Cheng Chun-hei and impounded his white Porsche. Photo: Elson Li/ SCMP

Additionally, The South China Morning Post hinted that JPEX is taking steps towards implementing its decentralized autonomous organization (DAO) proposal, which received majority approval from voters on September 28. According to a JPEX announcement quoted by SCMP, the proposal involves a shareholder dividend scheme allowing investors to convert their funds into DAO stakeholder dividends at a 1:1 ratio. These dividends, claimable after two years, encompass listing fees, trading fees, and JPEX cryptocurrency tokens.

The Securities and Futures Commission has announced its involvement in the case, stating that it would engage its enforcement and intermediaries divisions, along with three police bureaus. This move underscores the government’s commitment to resolving the JPEX scandal and bringing the perpetrators to justice.

The unfolding saga began when a JPEX platform user revealed that she and other victims of this alleged digital currency fraud could no longer withdraw their assets. This revelation came shortly after JPEX announced its intention to enhance cash flow and retain investors through this controversial conversion scheme.

The anonymous user lamented, “All of my USDT [Tether tokens] and other cryptocurrencies are gone, all transferred to JPC [the platform’s own digital currency]… Some other users holding the tokens and other assets have also found them transferred.” The absence of any information regarding the exchange rate for JPC only adds to the user’s distress.

Tether, a stablecoin designed to maintain a stable price point of US$1 per token, has left users grappling with the loss of their assets. One user aptly described the situation, saying, “Given the unknown price and the impossibility of withdrawal, our assets have now become just waste paper.”

This scandal, touted as Hong Kong’s largest alleged case of financial fraud involving assets exceeding HK$1.5 billion (US$191 million), first emerged when the city’s securities watchdog labeled JPEX as an unlicensed platform engaged in suspicious activities. In response to the allegations, JPEX announced the completion of a user referendum, with 68 percent voting in favor of the divisive dividends plan.

In a statement, JPEX declared, “As a platform, we highly respect the decision made by our users,” and added that they have commenced the gradual implementation of the “DAO Shareholder Dividend Scheme.” This scheme embodies the concept of a decentralized autonomous organization, where all members participate in decision-making through blockchain-based voting mechanisms.

JPEX assured users that they are actively negotiating with third-party market makers to release funds for platform adjustments. They also pledged that all profits, apart from the dividend portion, will be used for repurchasing DAO dividends held by users.

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