The anonymous creators of an unlicensed crypto exchange in Hong Kong allegedly absconded with $19 million, leaving platform users in the lurch and the digital assets-friendly city dealing with its second major crypto scandal in barely two months.
Some 145 people were affected by a hack of the Hounax exchange as of Tuesday, according to police, and now Hong Kong’s version of the SEC, the Securities and Future Commission, is facing criticism that it’s been too lax in its approach toward crypto.
Hounax lured in retail investors via social media with claims that it was cofounded by the original Coinbase technical team and had a Canadian Money Services Business license. The exchange also said it was courting investments from Sequoia Capital and IDG Capital, but in early November the SFC designated it a suspicious platform and warned investors to steer clear.
After investors made deposits, the Hounax app allegedly displayed growing balances but, according to authorities who spoke to local media, those funds already had been drained.
Although crypto trading is banned in mainland China, Hong Kong increasingly has embraced digital assets, introducing a licensing scheme in June and allowing for some types of crypto trading.
The Hounax hack comes after more than $120 million disappeared from the unlicensed JPEX crypto exchange in September. Since then, 66 people have been arrested in connection with the case, including influencers such as Joseph Lam and JPEX employees.
Some Hong Kong lawmakers have criticized the SFC for not doing more to prevent such exploits. Lawmaker Doreen Kong Yuk-foon of the Election Committee said Hong Kong’s crypto regulator could have stepped in earlier and must shut down unregulated exchanges so as to not leave “every investor to themselves,” according to the Standard.
And Hong Kong Chief Executive John Lee Ka-chiu said on Tuesday that the “government will actively cooperate” if the SFC requires more power to crack down on unregulated exchanges like Hounax.