Hong Kong Rattled by Massive Cryptocurrency Scam Cases, Sparking Calls for Tighter Regulation

Hong Kong is reeling from two recent major cryptocurrency fraud cases that have collectively ensnared over 2,500 alleged victims and resulted in losses totalling over HK$1.6 billion ($200 million).

The enormous scale of the scams has exposed flaws in Hong Kong’s cryptocurrency regulations and prompted demands for greater powers to tackle unlicensed platforms.

Keypoints

• Hong Kong authorities are considering giving more powers to regulators to tackle cryptocurrency scams after recent major cases involving alleged fraud totalling over HK$1.6 billion
• Critics say legal loopholes prevented watchdog Securities and Futures Commission (SFC) from taking action against unlicensed crypto platforms like Hounax
• Hounax allegedly scammed 145 Hong Kong residents out of about HK$148 million after promoting investments through social media and chat groups
• Lawmakers accused SFC of reacting too slowly in warning public about latest crypto scam
• Chief Executive John Lee says Hong Kong should strengthen investor education and transparency around crypto platforms

The latest case came to light last week, as police revealed that 145 Hong Kong residents lost approximately HK$148 million ($19 million) after being lured into investing on a crypto platform called Hounax. The company allegedly promoted itself through social media and chat groups, enticing victims with promises of high returns. However, investors soon found themselves unable to withdraw funds or access their accounts.

This scam follows a larger case focused on crypto exchange JPEX, which erupted in September 2022. JPEX is accused of defrauding over 2,500 investors to the tune of over HK$1.5 billion ($190 million).

Authorities have faced criticism over their handling of these fraud cases. Lawmakers blasted gaps in legislation that prevent the Securities and Futures Commission (SFC), Hong Kong’s financial watchdog, from taking action against unlicensed cryptocurrency operations like Hounax. Meanwhile, the SFC drew fire for not alerting the public sooner.

In response, Hong Kong Chief Executive John Lee has indicated that regulators may be given greater powers to go after illegal crypto platforms. However, he emphasized that investors also need to take responsibility by only using licensed providers. Lee additionally called for enhancements to investor education programs and more transparency around cryptocurrency services.

As Hong Kong aims to build itself into a virtual asset hub, these back-to-back debacles underline deep flaws in oversight and safeguards for cryptocurrency trading. Tighter regulation of crypto platforms clearly needs to be a top priority for financial authorities. But repairing trust among investors shaken by the mammoth losses may prove to be an even greater challenge.