Many friends in the cryptocurrency circle may still remember that Sa Jie’s team recently published an article analyzing the “Warning: Improper Operation of Virtual Asset Trading Platforms” issued by the Hong Kong Securities and Futures Commission to the virtual asset market and Web3 practitioners. At that time, this warning confused quite a few people. Who exactly was the Hong Kong Securities and Futures Commission warning?
Now we have the answer: JPEX Exchange. On September 13, 2023, the Hong Kong Securities and Futures Commission revealed the mystery through the “Warning Statement on Unregulated Virtual Asset Trading Platforms”.
Subsequently, on September 18, 2023, the Hong Kong judicial authorities officially took action against JPEX, first targeting a Hong Kong internet celebrity named Lin, who had been vigorously promoting and claiming to be a JPEX partner. Lin was arrested, and his office in Central was searched. According to media reports, law enforcement officers took away a large amount of materials and cash. Following this, some investors discovered that JPEX was unable to pay out investment funds normally, and even an application for a payout of 1000u could only be paid out as 1u. The development of this case has become confusing.
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Today, Sa Jie’s team will dig deep into the past and present of JPEX Exchange, as well as its various irregular, illegal, and even criminal operations, recounting the “sins of JPEX”.
01. The Past and Present of JPEX
JPEX, as a virtual asset trading platform that focuses on playing, has unique methods and extensive marketing. Sa Jie’s team has actually been paying attention to it since last year: even in 2022, when Web3 and virtual assets were at their peak in Hong Kong, and virtual currency platforms flooded the streets and alleys with countless advertisements, JPEX was still able to break through in terms of marketing, all thanks to its significant publicity efforts.
It is precisely because JPEX has invested significant marketing costs and combined them with highly attractive investment returns and gameplay that numerous investors from various regions (mainly mainland China, Hong Kong, and Macau) have flocked to participate.
However, beneath the apparent prosperity, JPEX, which seems to be thriving, has many extremely high-risk “reefs”.
(1) JPEX has never provided effective information disclosure and has not disclosed its controlling shareholders and place of registration
According to current public sources, since its registration in 2020, JPEX has been in operation since 2021. It has registered and operated in multiple countries and regions worldwide (including Hong Kong, Japan, Australia, the United States, Canada, Lithuania, and other countries and regions). However, apart from Guo, who serves as a director of JPEX, making fair appearances and handling corresponding affairs, JPEX has never publicly disclosed key information such as its founding team and place of registration. The actual responsible persons and office locations in these relevant regions have also never been made public. Sa Jie’s team has conducted some background investigations in a conventional manner and has not found any additional valid information.
According to the news from “Hong Kong 01”, JPEX has registered in several countries around the world, and the registered information is suspected to be “dummy” registration. There are rumors that its founder is a well-known figure in the cryptocurrency circle, “Mr. Huang”, but there is currently no concrete evidence to confirm this rumor.
I believe that friends who are familiar with the cryptocurrency community and various “projects” know that the basic information of the founding team, as well as the operational guidelines and business models, are key to proving the credibility of the project. Nowadays, the cryptocurrency circle is no longer the same as it used to be. Being mysterious not only does not bring profits to the platform, but also makes investors hesitate. JPEX is such a mysterious platform that lacks a sense of security.
(II) JPEX has repeatedly used “collision-style” and “fraudulent” marketing methods to attract investors
Since 2022, when JPEX started its aggressive marketing, it has established two basic guidelines: (1) celebrity marketing; and (2) collision-style/fraudulent marketing. Everything is aimed at attracting investors and gaining popularity in the short term.
Celebrity marketing is easy to understand. Recently arrested Hong Kong internet celebrity Mr. Lin, as well as certain male and female stars from Hong Kong, have all appeared as spokespersons under JPEX’s extensive marketing campaign, attracting “traffic”. As for the collision-style and fraudulent marketing, the most well-known thing about JPEX is the “small conflict” with VISA at the beginning of 2022.
At the beginning of 2022, JPEX announced its cooperation with Simplex (a card issuing institution under VISA) and announced the launch of a VISA card in the fourth quarter. JPEX then started aggressively targeting VISA, conducting extensive promotion and advertising to enhance its own credibility. Soon, VISA discovered JPEX’s false advertising and quickly sent a letter of warning to JPEX. JPEX quickly apologized and shifted the blame to its advertisers, saying, “Sorry, the advertisers are printing promotional materials without authorization.”
02, JPEX’s Wild Play
After attracting a large amount of traffic, JPEX quickly launched a series of “wild” play, which carries high risks but promises extremely attractive returns.
(I) High return for new users
First, there is the activity of recruiting partners with extremely high returns in the name of “partners”. JPEX promises to recruit partners with high commissions (which is why the previously arrested internet celebrity Mr. Lin claimed to have applied to become a JPEX partner). The terms of being a “partner” are clear: invite 1000 people to become JPEX customers, and if the average assets invited within 30 days reach 10 million U, the partner will receive a dynamic reward of 6000 U per month. In April 2023, JPEX directly increased the dynamic income of this new user recruitment to a high of 1 million U, clearly defining a dynamic income system that rewards a high number of new users.
(II) 45-second Contract Battle
Next is a new gameplay created by JPEX. According to the official website of JPEX: users will see a green upward-moving and red downward-moving fluctuation line on the screen, which represents the market price trend. After 45 seconds, users can input the betting amount and press “PUMP” or “DUMP” to predict the rise or fall of the line after 45 seconds. If the trend is guessed correctly, profit can be made; otherwise, the betting funds will be lost. Users can place bets using virtual currencies such as Bitcoin or Ethereum.
(III) JPC, the platform token, only rises and has a huge market cap but extremely poor liquidity
Furthermore, there is a suspicion of serious data fabrication with the platform’s own virtual currency. Through third-party data analysis, it can be observed that JPEX’s platform token is very interesting. Despite the global economic downturn and the generally sluggish crypto market, it has risen against the trend and only goes up. It has increased 40 times from 0.001U when it was listed on August 8, 2022, to 0.04U in June 2023, reaching a peak market cap of 1.88 trillion RMB.
Although the total market cap of JPEX seems to be 1.88 trillion, strangely, the 24-hour trading volume of the token is less than 10 million. Combined with the lack of information disclosure from JPEX itself, there is a high possibility of data fabrication, and there may even be a large number of wash trading transactions in the historical data, posing significant investment risks.
Note: The image is sourced from the internet and is only for learning and communication purposes.
03. If JPEX operates in mainland China, what crimes might it be involved in?
Based on the facts that the Sa sister team has currently observed from public channels, JPEX is likely a large-scale Ponzi scheme, and its methods and practices during operation may involve multiple crimes under Chinese law. The Sa sister team needs to remind everyone that due to the large number of victims of JPEX being residents of mainland China, without considering other circumstances, the judicial authorities in mainland China probably have jurisdiction over this case. However, whether they will actually exercise jurisdiction is a complex issue.
(I) Organizing and Leading Pyramid Selling Activities
JPEX’s high-return promotion activities under the name of “partners” are suspected of organizing and leading pyramid selling activities.
According to Article 224(1) of the Criminal Law of China: Whoever organizes and leads pyramid selling activities, which use business activities such as promoting goods or providing services as a pretext, requires participants to pay fees or purchase goods or services to obtain membership, forms a hierarchical structure in a certain order, and directly or indirectly rewards or rebates participants based on the number of people they recruit, lures or coerces participants to continue recruiting others, and deceives property, disturbing the economic and social order, shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention, and also be fined; if the circumstances are serious, they shall be sentenced to fixed-term imprisonment of not less than five years and also be fined.
When it comes to the crime of organizing and leading pyramid schemes, the most important thing in practice is to determine the organization’s business model, profit methods, and personnel composition. According to the opinions issued by the Supreme Court, Supreme Procuratorate, and Ministry of Public Security in 2013 titled “Opinions on the Application of Criminal Law in Handling Criminal Cases of Organizing and Leading Pyramid Scheme Activities,” Article 1 clearly states: “If the number of participants involved in pyramid scheme activities within the organization is over thirty and the hierarchy is over three levels, the organizers and leaders should be held criminally liable.”
Among the numerous cases of organizing and leading pyramid scheme activities that the Sajie team has encountered, the coexistence of static and dynamic income is one typical characteristic. It is already quite clear that JPEX exists with the fact that it generates income by recruiting people, raising funds, reaching a new recruit count of 1,000 people, and an amount of 10 million U (if each “partner” can only apply strictly according to the promotional rules). Now, it is crucial to examine whether the newcomers of JPEX and the people who recruited them have formed an upline and downline relationship, and calculate and pay the upline rewards based on the number of downline developments.
(II) Crime of Operating a Gambling House
The so-called “45-second contract battle” is a very clear online gambling behavior, and JPEX, as the bookmaker, is suspected of operating a gambling house under Chinese law.
In the “Interpretation on the Specific Application of Laws in Handling Criminal Cases of Gambling” issued by the Supreme People’s Court and the Supreme People’s Procuratorate, Article 2 further refines the determination of the act of operating a gambling house using the internet. It defines the act of operating a gambling house as “establishing a gambling website on the computer network or acting as an agent for a gambling website and accepting bets” with the purpose of making profits. The risk of the “45-second contract battle” being involved in the crime of operating a gambling house is extremely high.
In the case of He Mou, Wang Mou, Shu Mou, etc. operating a gambling house [Case No. (2020) Ji 0622 Criminal First Instance No. 73], the defendants He Mou and Wang Mou acted as agents for a certain virtual currency website overseas through online friends. They established and operated a team, used the internet and mobile terminals to send advertisements such as profit screenshots and website links of the platform, and recruited players to participate in the “guessing rise and fall game.” The specific mode of this game is as follows: the website sets a leverage trading multiple of 50 times, and players can bet using USDT to guess the rise and fall of other types of virtual currencies. The website deducts 0.2% of the players’ betting amount as a handling fee. The first-instance court in this case believed that the defendant He Mou, with the purpose of making profits, acted as an agent for a gambling website and accepted bets, constituting the crime of operating a gambling house. The defendant Wang Mou, with the purpose of making profits, helped He Mou establish the website and participated in the profit sharing of gambling, constituting the crime of operating a gambling house.
Sajie team reminder: This type of gameplay carries extremely high risks and directly violates the red line of criminal law. Friends, remember to avoid it.
(III) Crime of Fundraising Fraud
In the case of falsifying their own virtual currency data after the issuance of JPEX, it is likely to constitute the crime of fundraising fraud.
According to Article 192 of the Chinese Criminal Law, the crime of fundraising fraud refers to the act of illegally fundraising through fraudulent means for the purpose of illegal possession. Under Chinese law, the crime of fundraising fraud can be regarded as an advanced charge of the crime of illegally absorbing public deposits. Without holding the relevant administrative license, promising to guarantee the principal and pay interest, publicly absorbing deposits from the general public, and subsequently fleeing with the funds by falsifying data, restricting withdrawals, and creating obstacles to transactions are the most typical cases of fundraising fraud.
In practice, there are two typical behavior patterns for using fraudulent methods: one is to fabricate facts, and the other is to conceal the truth. By washing and trading and self-buying and selling, the price of the virtual currency deviates significantly from its original price, which is a typical act of fabricating facts.
04. Conclusion
As of today, the Hong Kong judiciary has taken detention measures against individuals related to JPEX, including but not limited to those who promote JPEX, hold JPEX virtual currency and promote it vigorously, recruit others, and provide support for JPEX’s business expansion in Hong Kong. The next step will be to take action against the actual controllers and beneficiaries of JPEX. It is reported that during the “Token2049” cryptocurrency summit held in Singapore, all staff members in JPEX’s booth have already evacuated, and various measures restricting user withdrawals have been implemented on the platform. The Sa Team will closely follow the progress of the case and welcome victims from mainland China to consult the Sa Team for their rights in this case. We are always here!
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