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Following allegations of fraud at JPEX, Hong Kong has been rattled by another cryptocurrency exchange scandal, this time involving Hounax, which is suspected of fraud.
The crypto trading platform, apparently run by a Singapore company and targeting Hong Kong investors, was listed as an "unlicensed company and suspicious website" by the China Securities Regulatory Commission on November 1. It is the subject of at least 145 police reports, involving some HK$148 million ($19 million) as of 27 November, Hong Kong's Headline Daily reported.
Victims of the scam were recruited through social media, with fraudsters posing as "financial experts" on platforms like Facebook and YouTube. The victims were then lured into a WhatsApp investment group, where the fraudsters built trust by awarding prize money and showing successful withdrawals.
By August, victims were convinced to trade cryptocurrencies on the Hounax platform. However, it was an elaborate scam. Victims paid a verification fee, and when trying to withdraw, were hit with an additional 3% fee. A notice later appeared, instructing users to withdraw assets within five days or lose them, demanding a 1% verification fee.
Victims realized the scam when the administrator vanished, along with their funds. The belated warning from the Securities and Futures Commission (SFC) came too late for many.
A check by Blockhead showed that Hounax's website (www.hounax.org), its Medium blog and Twitter/X profile, are currently unavailable.
Investors Left in the Lurch
Hong Kong, like many other jurisdictions, is grappling with how to regulate this rapidly evolving digital landscape effectively. Striking the right balance between fostering innovation and protecting investors is a delicate task that requires constant adaptation to new forms of crypto scams.
Many of the affected investors have expressed their frustration and anger at the slow response of regulatory bodies in Hong Kong. They argue that a warning from the watchdog came too late, and that that stricter regulation and timely warnings could have saved them from the devastating financial consequences, according to a report in the South China Morning Post.
The Hong Kong Securities and Futures Commission's (SFC) CEO Leung Fengyi said the regulator has no right to stop its operations as Hounax is not a licensed virtual asset trading platform.
Investor Demands and Regulatory Responses
In response to the Hounax scandal, affected investors are calling on authorities to investigate the matter thoroughly, bring the perpetrators to justice, and ensure that investors are adequately compensated for their losses.
The incident has also prompted renewed discussions about the need for more robust cryptocurrency regulations in Hong Kong. Local lawmakers Doreen Kong Yuk-foon and Johnny Ng Kit-chong said the SFC’s efforts to warn the public were insufficient and are advocating for increased oversight and stricter enforcement measures to prevent such scams in the future.
“There are hundreds of firms listed as ‘suspicious’ by the SFC… They can’t say ‘we have already informed you of that,’" Kong said, SCMP reported
The Path Forward
This startling incident highlights the challenges that regulatory authorities face in monitoring and preventing scams in the cryptocurrency space. As the Hounax exchange scam continues to unravel, it serves as a stark reminder of the risks associated with the cryptocurrency market.
For Hong Kong's regulatory authorities, the incident highlights the urgency of revisiting and strengthening their regulatory framework for digital assets.
Along with JPEX, the Hounax exchange scandal is a significant test for Hong Kong's cryptocurrency market, one that will shape its regulatory landscape for years to come. Investors and industry participants alike will be watching closely to see how authorities respond and whether justice is served for those who lost their hard-earned money.