Frozen Funds Hit Hong Kong Crypto Exchange

Customers of a Hong Kong-based cryptocurrency exchange managed by an ex-highly placed UBS Group AG executive claim they cannot withdraw money or tokens and that at least seven of them have reported it to police.

Based on messages posted on the Telegram chat, it was found that many clients have not been able to withdraw from Coinsuper since November. Bloomberg News heard from five customers that they had filed police reports after their withdrawals were frozen. This meant that they could not retrieve $55,000 in tokens and cash.

The controversy surrounding Coinsuper, which is backed by Pantera Capital, and managed by Karen Chen, former President of UBS China Inc., could fuel calls for greater regulatory oversight in Hong Kong. In November 2020, the head of Hong Kong’s securities watchdog stated that it would propose a licensing system for all crypto-trading platforms. This is a similar approach to Singapore’s financial hub.

Coinsuper executives did not respond to messages and calls seeking comment. A spokesperson for Hong Kong’s police stated by email that they are investigating a case in which a person who purchased cryptocurrency “via an investor company” was not able to withdraw her funds from December.

The Telegram chat of Coinsuper showed that the administrator had stopped responding to questions about failed withdrawals in November and then returned to the Telegram chat to request email addresses from affected users. Interviews with clients revealed that the administrator did not follow up on their queries about failed withdrawals in November, but then resurfaced last week to ask affected users for their email addresses. Bloomberg also didn’t reply to these messages.

Volume Slump

Terry Chan, a financial professional in Hong Kong, used the platform for the first time in November 2020. It was “quite big in Hong Kong at that time.” After noticing that the trading was becoming less liquid, he tried to withdraw $4,000 from this exchange in December. He filed a complaint with Hong Kong police on Jan. 5 along with two other Coinsuper clients.

The trading app for Coinsuper is still available and handled $18.5 million in volume over the past 24 hours. This is down from the daily peak of $1.3B in late 2019 according to crypto data firm Nomics. According to Nomics data, Binance was the largest crypto exchange and handled $51 billion worth of transactions in the last day.

Hong Kong has an “opt-in” regulatory system for crypto exchanges. This means that they can apply to be regulated. However, the strict regulations make it difficult for platforms to go down that path, according to Joshua Chu, a consultant with ONC Lawyers Hong Kong.

Chu said that the city would likely abandon the opt-in model by this year. Chu said that it is not unusual for crypto exchanges to face withdrawal delays and other problems. He also stated that regulation may be necessary for technical issues.

Employees Cancel Their Employment

According to Chinese media reports, Coinsuper was established in 2017 by Zhang Zhenxin (a Chinese tycoon who died in 2019). Chen, who was previously president of UBS’s wealth-management unit in China, joined Coinsuper in 2018. According to a press release, the company raised its latest round of funding in 2018.

One of Coinsuper’s venture capital investors, a partner, asked not to be identified. He said that the company has written off approximately $1 million of its investment. According to the person, around six to eight months ago, Coinsuper lost contact with its management. Chen also stopped responding on WeChat. According to Hong Kong’s Companies Registry data, several employees quit the company in July and December.

Pantera Capital is run by Dan Morehead, a veteran Bitcoin investor. He didn’t respond to emails asking for comments. In its June 2018 Series A funding round, the firm invested in Coinsuper. Pantera’s website still lists crypto exchange as one of its investments.

In the October 2018 annual report, Chen was named Coinsuper’s largest individual shareholder. In November 2019, she last updated Coinsuper’s Twitter feed. Coinsuper’s last major announcement was made in September 2018. It announced on Twitter that it would be adding the Solana token to the exchange and the Tether stablecoin. Since Dec. 1, its social media accounts have been inactive.

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