Hong Kong residents furious with the SFC after losing $19m to crypto scam involving Hounax platform
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Crypto users in Hong Kong recently fell victim to a crypto-related scam involving a platform called Hounax. The scam reportedly resulted in total losses of HK$ 148 million (US$19 million).
Now, however, the victims are blaming the local securities regulator, the Securities and Futures Commission (SFC) for not warning them about the scammers earlier. Many have argued that the warning came too late, and that they were already caught in the scheme by the time they realized what was going on.
— imhodler (@iamhodler_) November 28, 2023
In reaction, the local lawmakers are calling for urgent tightening of the local regulations in order to address any loophole that would allow unlicensed platforms to operate in the small country’s regulatory vacuum.
How did the scam work?
The regulator acknowledged the incident, but it also spoke in defense of its monitoring system, explaining that it takes time to launch a proper investigation once irregularities are noticed. The first complaint that the commission had received against Hounax came in late September of this year. The investigation was launched in October, and the platform was officially listed as a suspicious entity on November 1.
Meanwhile, the scam’s victims have come forward in order to share their experiences of being drawn into the scam. Their testimonies show that the majority got involved through social media or various communication platforms, like WhatsApp.
There, the scammers posed as financial experts, and they provided investment advice. They were playing the long game, slowly building trust over the course of several months, until one of the victims eventually reported a loss of HK$150,000.
Hong Kong authorities say 145 victims, $18.9M lost in Hounax scam#HounaxScam
— CRYPTO ₿ACKING (@Cryptobacking) November 28, 2023
During the several-month period, scammers communicated with investors, advising them to use a number of strategies in order to create the illusion of legitimacy. With each profitable trade, investors were becoming more trusting an more willing to use larger amounts. Meanwhile, the scammers’ accomplices within the chat group validated the platform’s credibility by ensuring that transactions were successful.
Then, the platform offered a special deal in October, which many among the investors took. The deal promised great returns, but they were unable to withdraw their funds until November 12. When the SFC announced its alert against the platform on November 1, it was too late, as many had already deposited their money.
Investors were warned to stay away from deals too good to be true
Some have criticized SFC’s reactive approach, highlighting a need to introduce prative measures in order to prevent platforms like Hounax from operating unchecked. Among the critics were lawmakers Johnny Ng Kit-chong and Doreen Kong Yuk-foon, who suggested using the Telecommunications Ordinance to ban suspicious sites.
Before the incident, in September of this year, Hong Kong Chief Executive John Lee Ka-chiu warned the public to be wary of any opportunity that sounds too good to be true while the regulators comb through the standing laws that involve digital assets. Unfortunately, it appears that many had failed to heed this warning, leading to massive losses.