Dubai Regulator Hits OPNX With $2.7M Penalty

$100M Pyramid Scheme Linked to Prominent Chinese Filecoin ProjectA courtroom showdown currently playing out in the People’s Court of Pingnan County in northeastern Fujian province in China is laying bare an intricate pyramid scheme entwined with one of China’s flagship ventures in the Filecoin ecosystem.The lawsuit thrusts five defendants into the spotlight, alleging their orchestration of an expansive pyramid scheme under the guise of their enterprise, Shenzhen Space-Time Cloud Company. The operation is purported to have siphoned off millions of dollars, leaving in its wake a trail of financial wreckage.Photo by Traxer on UnsplashAggressive project marketingAccording to a local media report published on Monday, the saga began in June 2018 when Lai Mouhang and Lai Moujun established the Space-Time Cloud Company. Subsequently, co-defendants Hu and Liang joined the ranks in the following months. However, it wasn’t until September 2019 that Lai Mouhang escalated the company’s operations, leveraging the ipfs.cn domain to aggressively market and peddle investments linked to distributed storage technology and Filecoin’s intricate economic model.Central to Filecoin’s model is its block reward system, where miners validating new blocks receive Filecoin tokens (FIL) as a reward. In a stunning revelation, the prosecution claims that Lai Mouhang and his accomplices crafted a scheme mirroring this economic structure.Their brainchild, the filpool.io platform, served as a conduit for joint mining, masquerading as a storage server vending operation for FIL mining. This platform, intrinsically linked to Space-Time Cloud Company, allegedly formed the epicenter of the defendants’ fraudulent maneuvers.Almost 60,000 usersThe gravity of the scheme becomes evident when considering the staggering numbers: a reported 57,122 members registered on the filpool.io platform and an additional 143 partners on the bpool.io platform, a sibling project of Space-Time Cloud Company. These platforms collectively amassed a jaw-dropping RMB 607 million ($83 million), alongside RMB 62 million in diverse cryptocurrencies.The modus operandi of the defendants was rooted in enticing participants with rosy prospects of exponential profits. By acquiring a minimum of 8 terabytes of cloud computing power, individuals could attain bronze membership status or higher, unlocking the ability to further recruit participants. Unsurprisingly, the magnitude of returns correlated directly with the size of investments and the recruitment spree — classic hallmarks of a pyramid scheme.The prosecution contends that the defendants exploited these platforms as bait for participants, perpetuating the myth of high returns. This alleged deception led to substantial financial losses for many unsuspecting victims. Furthermore, these actions purportedly sowed discord and upheaval in both economic and social spheres, potentially transgressing criminal law boundaries.As the investigation into this convoluted case unfurls, its implications resonate far beyond China’s territorial confines. The intertwining of cryptocurrency, blockchain, and pyramid schemes punctuates the ever-evolving narrative of financial crime. The case highlights the importance of vigilance and regulatory scrutiny in an innovative industry that has more than its fair share of bad actors.

HashKey Gears Up to Offer Trading Service to Retail TradersHashKey is gearing up to launch its services to retail traders in Hong Kong with the intention of offering them Bitcoin and Ether trading products initially.The Hong Kong-based digital asset management platform received full licensing approval from the local regulator, the Securities Futures Commission (SFC), earlier this month. It’s anticipated that the platform will launch to retail on August 28.That’s according to a report from a local media source earlier this week. Financial publication Investing.com stated: “General investors in the period can only trade Bitcoin (BTC) and Ethereum (ETH), because these two currencies currently account for most of the trading volume in the market.“It’s worth noting, however, that investors will be subject to a cap, permitted to allocate only up to 30% of their net worth into the realm of cryptocurrencies while utilizing the platform.Photo by Traxer on UnsplashServing retail clientsIt’s a significant milestone for both HashKey and the regulator, given that Hong Kong has been making huge efforts to further the development of digital asset innovation within the Chinese autonomous territory over the course of the past twelve months. Hashkey, alongside brokerage and exchange business OSL (also successful in obtaining a license), has been collaborating with regulators from an early stage in the lead-up to both receiving full licensing.HashKey got to this point by focusing on two pivotal licenses offered by the SFC. The first of these licenses, known as Type 1, paved the way for HashKey to initiate a virtual asset trading platform, aligning seamlessly with the regulatory framework laid out under Hong Kong’s securities laws. The second license, Type 7, empowers the crypto platform to furnish automated trading services to both institutional and retail clientele.Nurturing digital asset innovationHong Kong has maintained a resolute focus on cultivating a crypto-friendly environment within its borders in 2023. Echoing this sentiment, Financial Secretary Paul Chan asserted the government’s and regulatory bodies’ determination to incubate a robust crypto and fintech ecosystem throughout the year.By March, over 80 crypto enterprises signaled their intent to establish a presence in Hong Kong, with several major players in the crypto industry among them. In April, the Hong Kong Monetary Authority (HKMA) issued a call to banks, urging them to extend their services to cryptocurrency companies.Banking remains a difficulty in Hong Kong for crypto businesses despite the HKMA’s efforts. However, in the case of both HashKey and OSL, both are being banked by Hong Kong’s largest virtual bank, ZA Bank.In May, the HKMA unveiled a comprehensive licensing framework tailored for crypto platforms, imposing a deadline of June 1 for compliance. As August rolled in, a select few crypto platforms clinched the green light to offer crypto trading services to an eclectic client base encompassing both retail and institutional participants.This regulatory framework, designed to safeguard the interests of investors, is playing a large part in Hong Kong’s recent success in developing the sector. In this particular instance, it will mean that retail traders will be granted access to Bitcoin and Ethereum exclusively. This curtailed selection provides a good starting point for retail trading, and it’s likely that we will see HashKey’s trading offering being extended to cover additional digital assets as soon as local regulators permit it.

As Hong Kong approaches the culmination of the Securities and Futures Commission's (SFC) deadline for cryptocurrency exchanges to seek licenses, the regulator issued a reminder to investors about the potential risks associated with trading on unlicensed platforms.Photo by Jarrod Erbe on UnsplashUrging cautionIn a notice released on Monday, the SFC emphasized the importance of engaging exclusively with SFC-licensed virtual asset trading platforms (VATPs) to ensure investor protection. With only one month remaining for exchanges to apply for a license under the city's virtual asset regulation, the SFC urged investors to exercise caution when dealing with platforms that have not yet received approval.The SFC suggested that investors check the list of regulated platforms, which it maintains on its website. Within the notice, the regulator outlined that in the past, some platforms have claimed to be regulated entities when they were not compliant platforms and not adhering to existing regulations within the Chinese autonomous territory. The advisory comes after the fallout from a high-profile fraud incident involving the JPEX trading platform last fall, resulting in substantial losses of $192 million. Growing list of VATP license applicantsLast month, four additional crypto exchanges, including the KuCoin-affiliated HKVAEX and Singapore-based Bybit, joined the list of official VATP license applicants. The SFC began publishing this list in response to the JPEX scandal, underscoring the importance of regulatory compliance in the cryptocurrency sector. Hong Kong's virtual asset regulation, enacted as an amendment to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance last year, stipulates that companies engaged in selling or marketing cryptocurrencies to Hong Kong residents must apply for a license by Feb. 29. Those failing to do so must cease business operations in the city by May 31. Currently, OSL and HashKey are the only licensed exchanges in Hong Kong, having received an earlier voluntary license that was later upgraded to include retail investors. These exchanges are operating under an interim solution permitted by the SFC, allowing retail investors to trade on their platforms. Setting a high barWhile 14 companies have formally submitted license applications to date, Patricia Ho, General Counsel for blockchain company Scroll, told the South China Morning Post (SCMP) that the stringent requirements set by Hong Kong have led to a selective process. Ho explained that the city has intentionally set a high bar for application submission, resulting in only the most committed and resourceful entities progressing to the application stage. Last month, it emerged that the SFC had acted to bolster investor protection by introducing a minimum insurance requirement of 50% for licensed crypto exchanges that handle customer funds. It is also planning to introduce a regulatory framework relative to crypto over-the-counter (OTC) trading desks. The SFC is also monitoring individual crypto projects, as last week, the regulator issued a stern warning to those behind the offering of the Floki and TokenFi staking programs. As the deadline approaches, Ho anticipates potential enforcement actions against smaller platforms operating in legal gray areas. Larger platforms, on the other hand, have already begun restricting access from Hong Kong.