After the JPEX and HOUNAX scams, another trading platform successfully made off with money in Hong Kong: BitForex, a cryptocurrency exchange claiming to be headquartered in Hong Kong, disappeared from public view after withdrawing nearly $57 million from its hot wallet. Users are now unable to access their accounts. This article is sourced from Gyro Finance and has been compiled and written by PANews.
Summary:
Hong Kong Chief Executive Li Jia-chao considers giving the Securities and Futures Commission the power to “block” suspicious exchanges.
The Securities and Futures Commission warns that exchanges without licenses must “shut down”, listing ByBit, OKX, and others.
Table of Contents:
BitForex disappears, leaving an empty space
Overseas groups provide clues, and the Securities and Futures Commission finally issues a statement
A problem with regulation? Or the worst outcome?
It is well known that Hong Kong is cautious in regulating virtual asset trading platforms, especially after the JPEX and HOUNAX scams. The government has made efforts to ensure the protection of investors’ interests through information disclosure and advertising.
However, those in the industry know that prevention is better than cure. With the prevalence of phishing links, pyramid schemes, and account theft in the cryptocurrency community, exit scams are not uncommon.
Recently, another trading platform in Hong Kong successfully made off with money by employing an “empty city strategy”. This time, the operation was more audacious, with the platform withdrawing funds directly from its hot wallet. On February 23, BitForex, a cryptocurrency exchange claiming to be headquartered in Hong Kong, withdrew nearly $57 million from its hot wallet and completely disappeared from public view. Users are now unable to access their accounts.
It seems that the regulatory authorities were once again late to respond.
BitForex disappears, leaving an empty space
On February 23, BitForex, a cryptocurrency exchange headquartered in Hong Kong, suddenly suspended withdrawals. Prior to this, the platform had delayed user withdrawals, citing wallet and website maintenance. At the same time, cryptocurrency outflows of approximately $56.5 million were detected from three BitForex hot wallets before the exchange halted trading. On February 26, the exchange’s website officially shut down. Users were unable to log in to their accounts or access the website, and they turned to social media for help. However, BitForex’s X platform account had not been updated since February 21, and multiple users reported that they were unable to access their accounts or see any assets displayed on their accounts on the official Telegram channel.
The Telegram group, with over 23,413 members, currently has more than 1,000 users waiting online for a response from the exchange. According to insider information, one of the administrators of the BitForex Telegram channel, Hazel_BitForex, has deleted their personal account.
Although the official website is no longer accessible, public information can still be found on LinkedIn. BitForex claims to have its headquarters in Hong Kong, with 6 million registered users and 51-200 employees. The company also has teams in Germany, Estonia, Singapore, Malaysia, the Philippines, and other countries.
According to information from the Hong Kong Companies Registry, the company was registered in 2018 and is located in the Kwai Fong area in the northern part of the New Territories in Hong Kong. In fact, it used to operate under the Chinese name “Bi Fu Wang” in mainland China but moved its operations overseas due to regulatory issues. The company’s press releases also mention several related business locations. However, the reality is that all these locations are empty.
According to Callan Quinn, a reporter from DL News who visited the registered and business locations, the company is located in an industrial complex near the public housing estate Wo Che Village, about 40 minutes away from the city center by the Tsuen Wan Line.
According to the staff at the registration site, the company mainly provides virtual addresses for Chinese mainland companies looking to establish offices in Hong Kong. It currently serves thousands of companies. The company secretary’s address listed by BitForex is located on the second floor of Building D/3 in the industrial complex, but there is no one there.
The last relevant location is in the bustling Mong Kok area. Although it is difficult to access due to the absence of residents, there are letters and packages scattered at the entrance of an office building that correspond to different company names, indicating that this address is also just one of the virtual addresses used. Google Maps also confirms this, showing that multiple companies, not just BitForex, use this address.
All the addresses are false, and the claimed hundreds of employees have long since disappeared. This undoubtedly indicates a premeditated scam. The suspension of withdrawals occurred a month after the departure of BitForex CEO Jason Luo, leading users to believe that this was the beginning of an exit scam. According to the records, Jason is the sole shareholder and director of the company and currently resides in Shenzhen.
In fact, regardless of the scam method, the platform has had problems before. Multiple financial regulatory authorities have issued warnings against BitForex. As early as October 2020, the Securities Commission of Malaysia listed BitForex as an unauthorized warning. In April 2023, the Financial Services Agency of Japan accused BitForex of violating the country’s fund settlement algorithm, and the Financial Conduct Authority of the UK disclosed that BitForex had been operating in the country without registration.
However, this does not seem to have affected the operation of the platform. After exiting the above-mentioned regions, BitForex claimed to be one of the world’s leading cryptocurrency exchanges in terms of market capitalization, with a daily trading volume of approximately $2.6 billion. According to CoinGecko data, from February 22 to 24, the exchange’s trading volume dropped from $2.5 billion to $1 billion.
There is currently no data or information available to track the platform, but it is interesting to note that BitForex was previously exposed by Chainalysis for falsifying trading data. It was found that the actual liquidity of the platform was only 1/800th of the reported trading volume, a shocking level of falsification.
Overseas groups provide clues, and the Securities and Futures Commission finally issues a statement
Regulation once again comes under scrutiny.
On March 4, after more than a week of suspended withdrawals, the Securities and Futures Commission of Hong Kong issued a warning to the public about a virtual asset trading platform claiming to operate under the name BitForex, which is suspected of engaging in virtual asset fraud.
BitForex is not licensed by the Securities and Futures Commission and has not applied for a license to operate a virtual asset trading platform in Hong Kong. The Securities and Futures Commission has listed BitForex as a suspicious virtual asset trading platform.
At the same time, the Securities and Futures Commission once again warned investors to beware of the risks of buying and selling virtual assets on unregulated trading platforms. If a platform ceases operations, closes down, is hacked, or any assets are misappropriated, investors may lose all their investments held on the platform.
However, prior to this, the Securities and Futures Commission had listed 14 suspicious virtual asset trading platforms, but BitForex was not included. On February 29, the Securities and Futures Commission announced the deadline for virtual asset trading platform license applications. A total of 21 platforms submitted their application materials. According to regulations, platforms that did not apply for a license by that date must cease operations in Hong Kong by May 31, 2024, and operating without a license is a criminal offense. Perhaps this was the final straw that caused BitForex to collapse.
In terms of the impact, this platform incident is not as far-reaching as the JPEX case, and it is difficult to track the follow-up and recovery of the scam funds. The ability to locate the founders and recover the stolen funds remains uncertain at this point. The worst-case scenario may be that this becomes another unsolved case, and investors are once again brutally reminded of the realities of the investment world.
Regulatory issues? Or the worst outcome?
These incidents have once again put the cryptocurrency industry and the Securities and Futures Commission in the spotlight.
However, from the facts, Hong Kong is already at a globally leading level in financial regulation, and some argue that its strict licensing requirements and limited investment options in the cryptocurrency field hinder innovation and flexibility.
Furthermore, as a securities regulatory authority, the Securities and Futures Commission is difficult to intervene and investigate before a fraud occurs. It does not have the authority to do so. It can only issue warnings or cooperate with law enforcement after receiving complaints. Hong Kong, as a globally renowned financial hub, has an open business environment for all companies, and many offshore entities register here. It would be like finding a needle in a haystack to investigate each one individually. From another perspective, it is apparent that the Hong Kong public’s understanding of the cryptocurrency field is insufficient. It is quite unbelievable that a platform with a history of information issues could claim to have 6 million customers. However, perhaps due to the information gap, this scam has affected many overseas groups.
Of course, this does not mean that the Securities and Futures Commission bears no responsibility. A suspicious exchange operated for almost six years, during which multiple institutions reported on it and other financial regulatory authorities issued warnings, but the regulatory body did not respond. This undoubtedly reflects Hong Kong’s excessive tolerance and regulatory oversight.
In terms of impact, this platform incident is not as significant as the JPEX case, and it is difficult to track the follow-up and recovery efforts. However, at present, it remains a point of concern whether the founders can be located and the stolen funds can be recovered. The worst outcome may be another unsolved case, and investors are once again taught a harsh lesson about the realities of the investment world.