The fraud incident on the Hong Kong HOUNAX trading platform was fully sorted out: the amount involved was HK$148 million, and the number of victims increased to 145

Article Author: Meta Era Guest Author “0xShinChan”

The Hong Kong Police and the Hong Kong Securities and Futures Commission recently launched an investigation into cryptocurrency trading platform HOUNAX, which has once again attracted attention after the alleged fraud case of JPEX. As at the afternoon of 28 November 2023, the number of victims had increased to 145, involving a total amount of about HK$148 million.

The Hong Kong Securities and Futures Commission issued a warning

ON NOVEMBER 1, HOUNAX WAS PLACED ON THE LIST OF SUSPICIOUS PLATFORMS BY THE HONG KONG SECURITIES AND FUTURES COMMISSION AND RECEIVED COMPLAINTS FROM MULTIPLE INVESTORS ABOUT SUSPICIOUS ACTIVITY. The SFC pointed out that HOUNAX claimed to be a cryptocurrency trading platform and claimed to work with a financial institution and another venture capital firm, but this was not the case. The company appears to be targeting Hong Kong investors, with a user registration page preset with a +852 area code and a “HOUNAX Hong Kong” social media channel on Facebook, X (formerly Twitter) and YouTube.

HOUNAX involves cross-border registration

FORMERLY KNOWN AS “NINE COINS”, HOUNAX IS A PLATFORM THAT TARGETS HONG KONG CUSTOMERS AND CLAIMS TO BE REGISTERED IN SINGAPORE. However, no registration records of companies with the same name have been found in Hong Kong and Singapore. THE COMPANY HAS PUBLISHED SPONSORED ARTICLES IN BLOCKCHAIN MEDIA, CLAIMING THAT ITS FULL NAME IS “HOUNAX GLOBAL CRYPTO PTY LIMITED” AND HAS LICENSES IN THE UNITED STATES, CANADA, AND AUSTRALIA.

ACCORDING TO THE SEARCH RECORDS IN CANADA, “HOUNAX GLOBAL CRYPTO PTY LIMITED” WAS ESTABLISHED ON FEBRUARY 2, 2021 AND CHANGED ITS NAME TO ITS CURRENT NAME ON APRIL 25, 2023. The registered address of the company is located in Ottawa, the capital of Canada, and the director’s name is “DENG Shijie”.

A COMPANY REGISTERED IN MELBOURNE, AUSTRALIA, HOUNAX GLOBAL CRYPTO PTY LIMITED, has been registered as a “Money Services Business” in the United States since May this year, according to records from the U.S. Department of the Treasury’s Financial Crimes Enforcement Bureau.

ACCORDING TO A SEARCH BY THE AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION, HOUNAX GLOBAL CRYPTO PTY LIMITED WAS INCORPORATED IN AUSTRALIA IN MAY 2023 AND ITS DIRECTOR IS ANDREA PARLAGRECO, AN ITALIAN NATIONAL.

This series of cross-border searches revealed the possible cross-border e-commerce activities behind HOUNAX and its complex registration background, making the investigation of this case even more difficult.

HOUNAX FRAUD

It is reported that the HOUNAX scam case is different from the JPEX case in that it mainly uses social media advertisements to attract citizens to join chat groups and open investment accounts with the gimmick of celebrities’ successful investments.

In its investigation, the SFC found that when the platform asked investors to make deposits, funds flowed into third-party individual or institutional accounts, rather than the platform’s own accounts. In addition, scammers impersonate investment experts, invite investors to join messaging groups, and frequently inflate high returns to induce investors to increase their investment.

HOUNAX’S OFFICIAL WEBSITE FALSELY CLAIMS TO COMPLY WITH THE REGULATIONS OF INTERNATIONAL ANTI-MONEY LAUNDERING ORGANIZATIONS, REQUIRING VICTIMS TO PAY 80% OF THE INVESTMENT AMOUNT IN THEIR ASSET ACCOUNT AS A VERIFICATION FEE IN ORDER TO REDEEM THEIR INVESTMENT. When an investor makes a withdrawal request, they will refuse with various excuses, such as asking for a high fee or asking the investor to make another deposit to unfreeze the account.

All parties in the Hong Kong government have expressed their positions

Hong Kong Securities and Futures Commission: Will cooperate with the police

Hong Kong Securities and Futures Commission chief executive Leung Fung-yee said that the HOUNAX involved in the case did not obtain a license and did not apply for a license from the SFC. Under the existing Ordinance, the SFC currently does not have the power to cease the operation of unlicensed platforms. However, she stressed that the SFC will not sit idly by and will work with the police to take legal action against suspicious persons.

Leung mentioned that there are also suspicious parties who claim to share investment tips with the public, in which members may exaggerate the so-called return tips and show the initial investment returns, giving people the misleading belief that they will get a return. When it comes to money processing, scammers allow users to withdraw small amounts, making it easy for investors to let their guard down and trust the platform to be safe. However, Leung pointed out that a large number of complaints received were due to the fact that users were unable to withdraw large amounts of funds. When scammers learn that users want to withdraw large sums of money, they may make it more difficult to withdraw due to reasons such as high fees.

Wong Lok-yan, Director of the Licensing Division and Head of the Fintech Unit of the Intermediaries Division of the Hong Kong Securities and Futures Commission, said that even after the end of the transition period, there is no guarantee that fraud will not occur, so the main reason for fraud cases is not the transition period itself. Leung Fung-yee also responded that various suspicious tactics common in traditional financial fraud, such as ramp-and-dump, may also appear in the virtual asset industry.

Members of the Hong Kong Legislative Council: Worried that more criminals will take advantage of the cooling-off period for licensing

Hong Kong Legislative Council member Jiang Yuhuan questioned the role of the SFC in the incident, believing that it was relatively passive in blocking the websites of relevant companies in a timely manner. She is concerned that during the cooling-off period of the licensing regime for virtual asset trading platforms, more criminals may take advantage of this opportunity to commit fraud. Jiang Yuhuan said in a program on Radio Television Hong Kong that compared with the rapid blocking of similar fraudulent websites abroad, the response of local law enforcement agencies is significantly lagging behind. She also urged the SFC to step up inspections on social networks and proactively notify the public when suspicious pages are found.

Hong Kong Chief Executive John Lee: Emphasizing the importance of compliant investment

On November 28, Hong Kong Chief Executive John Lee spoke on the issue of virtual asset investment platforms during a meeting with the media ahead of the Executive Council. He made it clear that the Hong Kong government has a clear stance on online platforms for virtual asset investment. First of all, investors must conduct virtual asset transactions on a licensed platform to protect their interests, so the regulatory regime is crucial. Second, the release of information must be transparent and timely. Thirdly, there is a need to strengthen public education to understand the investment risks, especially the importance of investing in licensed platforms, as being licensed means meeting the statutory requirements, while being unlicensed is extremely risky.

Mr Lee understood the concerns of the public and pointed out that the government would actively consider re-empowering the relevant regulatory authorities if needed. The government will actively consider any laws that need to be strengthened, or further improvements in information transparency, and ask the relevant authorities to do more in this regard.

32 HOUNAX-related websites were flagged and removed by the police

ON NOVEMBER 30, THE HONG KONG SAR POLICE SAID THAT VIRTUAL ASSET INVESTMENT PLATFORM HOUNAX WAS CONSTANTLY CHANGING ITS WEBSITE ADDRESS IN AN ATTEMPT TO EVADE POLICE ANTI-FRAUD WARNINGS AND TRACKING. Since October, the police have flagged 32 websites associated with HOUNAX and referred them to relevant agencies for removal or blocking.