Hong Kong court finds for investors against defunct cryptocurrency exchange JPEX in landmark civil case brought by two investors, marking a pivotal moment for investor protection in Hong Kong’s cryptocurrency space.
Background on the JPEX Fraud Case
In the ruling, District Court Judge Grace Chow Chiu-man ordered JPEX and another company, Web3 Technical Support, to pay HK$1.85 million, or US$238,000, in compensation to investors Herbert Lee Sung-him and Chan Wing-yan over their losses. The judgment was given by default of appearance at trial, reflecting the substantial proof of the allegedly committed financial fraud and mismanagement by the cryptocurrency platform.
The class action, filed in June 2023, concerns the loss of digital assets held by the defendant, JPEX. In the present case, the plaintiff Chan Wing-yan transferred USDT into JPEX wallets in July and August 2023. The money was lost, irretrievable for the account owner.
Court’s Rationale and Ruling
In her judgment, Judge Chow said there was sufficient evidence in the case to warrant a pre-trial adjudication. She granted the plaintiffs’ application to have the mislaid assets returned and issued an injunction against Web3 Technical Support, the Hong Kong intermediary through which the transaction in the case occurred.
Judge Chow suffused the implied trust obligations of JPEX and Web3 Technical Support to investors with greater heft by referencing Hong Kong’s regulatory requirements for cryptocurrency exchanges.
JPEX and Hong Kong’s Regulatory Landscape
It drew the attention of regulators for the first time in September 2023, when the Securities and Futures Commission of Hong Kong issued an alert against the unlicensed exchange. Over 2,200 complaints have been filed with police since the alert was issued, leading to arrests including public figures promoting the platform.
Authorities discovered that JPEX attempted to prevent withdrawals by imposing high fees and suggested the conversion of users’ assets into a “DAO shareholder dividend” scheme. Both moves were major red flags related to integrity of operations at the exchange.
Broader Implications for Hong Kong’s Crypto Sector
The first victory of the JPEX investors could set a precedent for the judiciary’s attitude toward cryptocurrency-related cases in Hong Kong. As the case involves around 2,600 victims with losses amounting to more than $206 million, it puts a face to what some of the potential dangers in cryptocurrency could be and reminds people that the space needs far more regulation.
More class-action lawsuits might follow, setting a possible course for future policies and protection for investors in Hong Kong’s crypto market.
