Hong Kong police vow to make arrests after virtual asset trading platform Hounax allegedly defrauded 131 people out of nearly HK$120 million

Hong Kong police launched an investigation on Saturday after more than 130 people claimed a virtual asset exchange platform called Hounax had defrauded them of nearly HK$120 million (US$15.4 million), and the force vowed to make arrests soon.

The Securities and Futures Commission (SFC) listed Hounax as a suspicious virtual asset trading company earlier this month after it was found to have linked its ties with a financial institution and a venture capital firm.

“The fraudster impersonated investment experts and lured people to invest in virtual currencies through a virtual asset trading platform with promises of high returns,” said Chan Wai-kei, superintendent of the force’s commercial crime bureau. “But when the investors went to withdraw the money, they were unable to do so.”

Police recorded more than 4,300 investment fraud cases in the first nine months of this year, a 105 percent increase over the same period last year, with HK$2.8 billion lost. Photo: Jelly Tse

Chan said police received 88 reports from 131 alleged victims who claimed they lost nearly HK$120 million. The youngest was 19 and the oldest 78, with a 69-year-old retired woman reportedly suffering the biggest loss of HK$12 million.

The platform, which claimed to be run by a Singaporean company, began operating early this year and appeared to target Hong Kong investors, he added.

But the force found no connections with the massif JPEX cryptocurrency exchange scandal, which affected more than 2,500 people and involved more than HK$1.5 billion in losses.

Eller Wing-yan, chief inspector of the bureau, said the alleged Hounax scammers would reach out to people through social media and WhatsApp and invite them to join group chats where “hot tips” were shared.

Those who showed interest would be asked to download the company’s app via a hyperlink and transfer money to a third-party bank account to top up their investment account.

“In the beginning, the victims would see quick returns in the investment account, but these were just meaningless numbers made up by the fraudsters to gain their trust,” Or said. “In fact, the moment they transferred the money to the third-party account, the money was transferred away.”

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When victims tried to withdraw the money, the platform’s “investment managers” would reject the request with other excuses or charge them a “verification” fee of up to 80 percent of their original funds, claiming it was a demand from an international anti-money laundering organization , said the chief inspector.

Even when the victims paid the fee, they still could not get the money back, she added.

“The ‘investment manager’ or customer service people would simply disappear and the victims would be kicked out of the group chat,” she said. “None of the victims met the scammers in person, and the third-party accounts that received the money were simply scammer accounts … all of which made the investigation more challenging.”

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Chan said arrests would be made in the near future, adding that police had asked telecom companies and social media platforms to block the website and their accounts.

He noted that police registered more than 4,300 investment fraud cases in the first nine months of this year, a 105 percent increase over the same period last year, with HK$2.8 billion lost.

Chan urged the public to remain vigilant and avoid blindly following the opinions of so-called investment experts, warning that scammers would often promise quick, high returns with minimal risk.

One of the residents who reported losing HK$2.8 million told local media that she wanted to withdraw the money after the company issued a statement on the verification fee requirement on November 13.

“I paid the fee but they said I still had to wait 60 days to get the money back or I could pay an administrative fee to get the money in five hours,” she said. “I thought it was strange, as they could have just withdrawn the amount from my account [instead of asking for more]so I called the police.”

Louis Li Sze-chung, a blockchain expert and adviser to tech start-up association 852Web3, said the scam tactics used were quite common.

“It often involves lesser-known platforms and they’ll ask you to transfer the funds to a third-party account, but that’s already an obvious red flag,” he said. “Normally, you only need to transfer the funds to a customer account owned by you, not the company.”

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The cryptocurrency scandal grips Hong Kong

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Li advised non-professional investors to choose only from the SFC’s list of licensed operators. They should also seek advice from friends, professionals or experts who could be helpful in spotting potential fraud, he suggested.

Gilbert Ng Man-him, a lawyer specializing in virtual assets, said it was challenging for authorities to detect all types of fraud due to the large number of online platforms, but they could step up efforts to educate amateur investors.

“Everyone should do their own research on the platforms, the virtual assets and the products before investing,” he said.

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Lawmaker Johnny Ng Kit-chong, who is helping some of the victims, called on the SFC to increase contact with unlicensed platforms to detect any potential fraudsters earlier and increase public education efforts.

The government should also motto strategies to fight organized criminal activities at the source, he said.

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