Hong Kong fails to prevent $148M Hounax scam, leaving investors fuming
Residents in Hong Kong have reportedly fallen victim to a suspected cryptocurrency scam involving the Hounax platform, with reported losses totaling HK$148 million (US$19 million).
The victims argue that the warning issued by the Securities and Futures Commission (SFC) was too late, as they had already been caught up in the scheme. Lawmakers are calling for tightened regulations to address the loophole that allows unlicensed platforms to operate in a regulatory vacuum.
The SFC, while acknowledging the incident, has defended its monitoring system, stating that time is needed for a proper investigation. The commission had received the initial complaint against Hounax in late September, launched an investigation in October, and listed Hounax as a suspicious entity on November 1.
Victims have come forward, sharing their experiences of being drawn into the scam through social media and communication platforms such as WhatsApp, where they were provided investment advice by individuals posing as financial experts. The fraudsters built trust over several months, with one victim reporting a personal loss of HK$150,000.
The elaborate scam involved strategies to create an illusion of legitimacy, with accomplices within the chat groups validating the platform’s credibility by showing successful transactions. The SFC’s November 1 alert on Hounax, according to victims, came after many had already invested in a special deal from the platform which prevented them from withdrawing funds until November 12.
Lawmakers Doreen Kong Yuk-foon and Johnny Ng Kit-chong have criticized the SFC’s reactive approach and highlighted the need for proactive measures to prevent such platforms from operating unchecked. They suggested utilizing the Telecommunications Ordinance to ban suspicious sites, as is done in other developed countries, and urged the SFC and police to collaborate more closely to protect the public.
Earlier in September, Hong Kong Chief Executive John Lee Ka-Chiu said that the territory’s regulators will conduct a thorough review of digital asset regulations, calling for the public to be wary of any opportunities that seemed “too good to be true”.
He indicated that crypto companies drawn by the city’s push to create a crypto hub should expect an exacting regulatory regime.
The scrutiny came in response to the recent arrest of eight individuals involved in alleged fraud at an unlicensed cryptocurrency exchange. The fraud impacted more than 1,600 investors and over $150 million in assets. Those arrested include social media influencers who promoted the JPEX cryptocurrency exchange, as well as employees of JPEX.
The city’s securities watchdog explained that the investors who were defrauded by JPEX were mostly inexperienced and had fallen for promises of high yields and low risks. The SFC is investigating whether JPEX violated the anti-money laundering ordinance after it referred the case to the police to assist in their investigation.
JPEX had been operating in Hong Kong for more than two years and run aggressive advertising campaigns, including placing ads in MTR stations in Central, Mong Kok, Tsim Sha Tsui, and Causeway Bay.