SFC in hot seat amid crypto trader fraud case

The Securities and Futures Commission has been accused of being too "passive" in supervising virtual asset exchange platforms after another fraud case involving HK$150 million came to light.

Election Committee lawmaker Doreen Kong Yuk-foon said "these platforms are all over the place" but the regulator cannot leave "every investor to themselves" and instead must shut these platforms down in advance and step up online patrols.

Police said there were so far 145 victims who have lost up to HK$148 million in the case involving trading platform Hounax. The losses, police said, ranged from HK$12,000 to HK$12 million for each victim.

Hounax is the second-biggest alleged scam case in Hong Kong involving a virtual asset exchange platform after at least 66 suspects linked to unlicensed cryptocurrency exchange platform JPEX were arrested.

Kong said on radio: "Hounax was already listed by the SFC on November 1. But I wonder, since it is considered a suspicious platform, why can't [the regulator] go a step further? It can block the platform and prevent it from contacting the public.

"I think [the SFC] as a regulator is rather passive."

Kong also said authorities should take more proactive actions instead of conducting investigations only upon receiving public reports, during which more people will be scammed.

She added: "More online patrols on social media or similar platforms are needed and authorities should take the initiative to alert the public whenever there are suspicious circumstances."

Some victims said the SFC was too late in issuing public warnings.

The commission said it received 18 complaints against Hounax, when it was aware of Hounax and had the platform on its alert list.

The SFC said it does not have the authority to ban the platform from operating.

SFC chief executive officer Julia Leung Fung-yee said Hounax is not an SFC licensee and has not applied for one, so it is not authorized to stop its operations.

She said the SFC will work closely with police and has a "zero tolerance" attitude toward market irregularities.

Leung said it is alleged that Hounax asked investors to deposit funds into third-party accounts, and then fraudsters claiming to be investment experts would lure investors to invest more.

"Investors were then refused withdrawals using various excuses or requested to pay high handling fees," Leung said.

Leung urged investors to stop investing through Hounax and report their losses as soon as possible.

Election Committee lawmaker Johnny Ng Kit-chong said on a radio program that five people who used Hounax sought his help. Their cases involved several million dollars.

Ng, a company director, said the current priority for the SFC is to enhance education for investors.

Leung said the SFC has stepped up such education, including setting up anti-fraud adverts on 42 buses and producing a four-episode TV drama to warn the public of common fraud techniques.

"Investors are also suggested to pay attention to the announcements on the SFC's website as fraudsters will use myriad tactics and must be vigilant if they find platforms that offer extremely high returns," she said.

stacy.shi@singtaonewscorp.com