Investor lawsuit reveals inner workings of Hong Kong crypto exchange that vanished with $200m

Nine months after the Hong Kong crypto exchange JPEX disappeared with an estimated $200 million in customer deposits, investors are firing back.

On Tuesday, two individuals in Hong Kong filed a civil suit against the mysterious company and six affiliated enterprises. They also sued Felix Chiu, the owner of an over-the-counter crypto trading shop called Coingaroo that peddled crypto on JPEX.

The lawsuit, which seeks restitution of more than US$700,000, pulls back the curtain on the alleged inner workings of one of Hong Kong’s most closely watched crypto cases.

Tron wallets

While the owners of JPEX have yet to be identified, the anonymous holders of three Tron wallets linked to the exchange were also sued, and will be served court papers using tokenized documents.

“This case will really test the judiciary’s capability in handling cases in the web3 space,” said Joshua Chu, the lawyer and technology specialist representing the plaintiffs.

JPEX could not be reached for comment. Chiu did not immediately respond to a request for comments left with Coingaroo.

The case offers an in-depth look at how JPEX operated and allegedly swindled Hongkongers.

Influencers peddling crypto

Since 2021, JPEX has promoted itself in Hong Kong through billboards and social media influencers.

Many of those influencers, including Joseph Lam, Henry Choi and Clement Chan, are among the over 70 people arrested during the police investigation into JPEX.

One of the plaintiffs, Wing-yan Chan, attended some of Lam’s seminars and was a member of his private Telegram and WhatsApp messaging groups.

The documents claim Lam “repeatedly advocated for the credibility, stability and profitability of JPEX” and that Lam and other promoters gave away referral codes to attract users to the platform.

Chan alleged that Lam’s seminars, posts, and messages led her to believe JPEX was a licensed, genuine, and secure cryptocurrency exchange.

JPEX claimed that investments would be safe and profitable, guaranteeing an annual return of at least 19% on its native token, JPC, according to the lawsuit.

Chan alleged that Lam’s seminars, posts, and messages led her to believe JPEX was a licensed, genuine, and secure cryptocurrency exchange.

Lam did not immediately respond to requests for comment.

By the time the Securities and Futures Commission issued a warning against JPEX on September 13, 2023, Chan had deposited almost US$248,000 into JPEX.

The following day, JPEX increased charges for withdrawing money. Withdrawals were fixed at an amount of 1,000 USDT, or around $1,000, per transaction, with a 999 USDT charge. (USDT is the dollar-backed stablecoin issued by Tether.)

Transferred without consent

Using a blockchain explorer app, the plaintiffs found that even though the transactions and balances showed up on their JPEX accounts, nearly all of their money had been transferred without their consent.

The funds passed through two of the wallets named in the suit and then moved on to several others. Both of those wallets now contain only a few dollars in tokens, while the third named wallet has no recorded transactions, court papers said.

JPEX kept up the charade for two more months, the lawsuit said. It launched a “stakeholder dividends program” before announcing on November 11 that its trading system was undergoing optimisation and reconfiguration.

It never reopened, and users could not withdraw any assets.

Setting a precedent

Chu, the plaintiffs’ lawyer, said the case could produce “precedent-setting developments” in how Hong Kong gets to grips with litigating in cases involving cryptocurrency and blockchain technology.

He is encouraging more victims to come forward and is concerned that some have been told they should wait until criminal proceedings have concluded.

“A lot of people are getting incorrect advice,” he said.

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