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Hong Kong Regulators Crack Down on Suspected Crypto Frauds HongKongDAO & BitCuped

The SFC’s actions reflect a broader trend of regulatory bodies intensifying efforts to protect investors from potential frauds in the digital assets space.

Photo by Markus Spiske / Unsplash

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The Securities and Futures Commission (SFC) of Hong Kong has issued a public warning against suspected virtual asset-related frauds involving HongKongDAO and BitCuped.

HongKongDAO, operating under the name "Hong Kong Digital Research Institute," has come under fire for allegedly disseminating false and misleading information. The SFC has flagged concerns about claims made by HongKongDAO, including purported licensing by the SFC, engagement in regulated activities since July 2020, and bids for a "Hong Kong Digital Currency Exchange Licence" related to the government’s framework for stablecoins. These claims, which the SFC asserts are unfounded, could mislead the public into believing that HongKongDAO's services and business are officially sanctioned and legitimate, the regulator said in a statement on Wednesday.

According to SFC, HongKongDAO appears to operate at least two Telegram groups, one in Chinese with over 10,000 members and the other in English with over 1,700 members. In the Telegram groups, the increase in the purported "market" price and future market value of the HKD token appears to be touted to lure investors to purchase the HKD token.

Adding to the regulatory crackdown, the SFC also called out BitCuped for fraudulent claims that bolster the credibility and legitimacy of its operations. Specifically, the company falsely asserted affiliations with prominent figures Laura Cha and Nicolas Aguzin as its chairman and CEO, respectively, which the SFC has refuted. Cha is the chairman of Hong Kong Exchanges and Clearing Limited (HKEX) while Aguzin is executive director and CEO of HKEX.

The SFC has taken proactive measures, including requesting the Hong Kong Police Force to block access to the websites of HongKongDAO and BitCuped. Additionally, cease and desist letters were issued to the website operators, demanding the cessation of the sale of HKD Tokens offered by HongKongDAO.

More Scams Hit Hong Kong

Following allegations of fraud at JPEX in September, Hong Kong was rattled by another cryptocurrency exchange scandal in November. Hounax, which is suspected of fraud, saw at least 145 police reports filed against the platform, involving some HK$148 million ($19 million) as of 27 November.

Many of the affected Hounax investors have expressed their frustration and anger at the slow response of regulatory bodies in Hong Kong. They argued 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.

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.

"These cases highlight the risks and challenges that Hong Kong faces as it strives to become a global hub for crypto innovation and adoption. While the city has a vibrant and diverse crypto ecosystem, with over 100 platforms operating in the market, it also suffers from a lack of clear and consistent regulation that leaves investors vulnerable to fraud and manipulation," Blockhead contributor Anndy Lian wrote, following the collapse of JPEX.

Is Hong Kong’s Reputation at the Mercy of Crypto Scammers?
Anndy Lian weighs in on the recent collapse of JPEX, a cryptocurrency platform that allegedly defrauded thousands of investors of more than HK$1.4 billion (US$180 million).

"The SFC once again takes this opportunity to warn the public to be cautious about too-good-to-be-true investment opportunities and advice posted on social media platforms and via instant messaging apps, on which they may be lured to invest by individuals who are not investment professionals," the regulator said.