JPEX revamp will prevent investors from claiming $180m in losses for two years

JPEX, the Hong Kong crypto exchange that’s become the target of a police investigation, has come up with a new idea for getting itself out of trouble — it is now a DAO.

In a blog post published yesterday, JPEX’S mysterious directors claimed 68% of users had voted in favour of a stakeholder dividend plan that will convert user funds into “DAO stakeholder dividends” that cannot be claimed for two years.

“Currently, our team is actively negotiating with third-party market makers and aiming to release funds promptly for the platform’s adjustment work,” the post said. “We also commit that, after the program’s implementation, all profits apart from the dividend portion will be used for repurchasing DAO dividends held by users.”

20 arrests

Little known outside of Hong Kong, JPEX appears to have become popular with retail traders in the city following a publicity campaign that plastered advertisements all over public transport.

Hong Kong authorities suspect JPEX was falsely operating without a licence. Police have received more than 2,400 complaints related to the platform and estimate losses at around HK$1.43 billion, or about $182 million.

Meanwhile police are trying to identify the leaders of the company.

The exchange’s post on Wednesday made no mention of the investigation, or the 20 arrests authorities have made of employees and influencers connected with the platform.

But the post did allude to “current challenges” and its solution.

“The platform will begin to operate as a DAO. All holders of dividends from DAO shareholders will be able to obtain voting rights in the future and participate in the platform’s decision-making in the form of referendums,” it said.

This is not the first time JPEX has talked about being a DAO or a collective where every member contributes. On its website, the company said it “transcends ‘traditional frameworks and hierarchies’.”

Dragnet for JPEX leaders

But however it defines itself means little to the authorities. Hong Kong’s secretary of security, Chris Tang, has vowed to hunt down the people running it even if they are overseas.

However, little is known about the platform, the extent of its popularity, or even who owns it. Police said four arrests last week, two in Hong Kong and two in Macau, were of people “relatively close to the core” of operations.

They said one was discovered trying to dispose of documents with a shredder and a bathtub full of bleach.

At the same time, crypto exchanges in Hong Kong will be getting scrutinised more closely by authorities.

The Hong Kong Police Force and the Securities and Future Commission have formed a task force to share information and investigate suspicious virtual asset platforms operating in the city, the SFC said in a statement released Wednesday.

JPEX represents one of the first major tests for Hong Kong as it transitions to a new regulatory regime for crypto exchanges. The case has made front page news in the city and Chief Executive John Lee has called for greater education for the public using these platforms.

The Securities and Futures Commission walked back its stance on publishing lists of those who had applied for licences on September 25 following pressure to be more transparent.

It also said it will create a list of platforms that have been shut down and a public awareness campaign on the risks of cryptocurrency investing.

Got a tip about JPEX or other crypto stories in Hong Kong? Contact me at callan@dlnews.com