A major cryptocurrency exchange service based in Hong Kong stands accused of causing investor losses to the tune of millions of dollars, and the local courts are unable to help.
According to the South China Morning Post, a firm based in the Seychelles – OKEx – settled some of its futures contracts early, meaning that investments totalling over $400 million were affected.
The incident, which happened on November 14th, is believed to have left many traders experiencing significant financial losses.
Three futures contracts in total were believed to have been delivered early. Some other actors in the Hong Kong crypto space, such as firm Amber AI, have made accusations of market manipulation.
OKEx responded to the claims, saying: “These are completely false allegations and the defamatory statements have caused serious damages to OKEx’s reputation.”
However, what sets this case apart from other cases of alleged crypto fraud is the way in which it increases the level of confusion around which watchdogs are responsible for what in Hong Kong’s cryptocurrency arena, and what is actually legal and illegal in the space.
Some of the traders affected have since attempted to take OKEx to task over the claims. After the incident, the Hong Kong’s Securities and Futures Commission, which regulates this industry, saw a case brought by some of the aggrieved former OKEx investors.
However, the court did not respond, and lawyers told the South China Morning Post that the situation was somewhat unclear.
One lawyer, when asked about whether or not it is legal for crypto exchanges to distribute losses among traders as OKEx may have done, said that this was probably acceptable within the established rules framework.
“Many of these exchanges do have ‘loss-socialising’ mechanisms stipulated as part of their terms and conditions for users,” said Hoi Tak Leung, from the law firm Ashurst.
“And this does not just apply to trading losses incurred on the positions on the exchange’s order books, but is also applied to losses caused by other events, such as hacking,” he added.
Gaven Cheong from Simmons & Simmons pointed out that exchanges which are based abroad do not have to register themselves in Hong Kong, throwing a geographic complication into the mix as well.
“I don’t think the jurisdiction of incorporation matters as much as whether, as a matter of substance, operations are being carried out in Hong Kong,” he said.
“[One of the] core principles of the SFC Statement provides that it expects all services to be conducted under one single legal entity, but there is no specific requirement that this legal entity be a Hong Kong company or entity registered here,” he added.
The Securities and Futures Commission in Hong Kong has taken some steps to introduce forms of regulation to the market.
It recently proposed a regulatory sandbox, for example. However, the case of OKEx and the response to its alleged fraud shows that there’s far to go before Hong Kong can truly be described as an effectively and clearly regulated crypto market.