As Bitcoin, Ethereum, and other well-established cryptocurrencies have recently surged, most old friends believe that the long-awaited "spring of crypto assets" and "super bull market" have arrived, and they are eager to invest a large amount of funds in the crypto asset market to seek opportunities for wealth. At the same time, Sa Jie noticed that due to the huge halo of Bitcoin, the prices of various coins in the entire coin circle have more or less started to rise.

For partners who have long been concerned about crypto assets, this should have been a good thing. However, under the guise of opportunity, there is always a lurking crisis. Some lawless individuals have once again turned their attention to the pockets of coin circle investors, and their criminal methods have become more brutal and rapid. On February 23, 2024, a publicly claimed Hong Kong-based crypto exchange BitForex, with lightning speed, withdrew $57 million from its online crypto asset wallet and then directly absconded, setting a new record for the "first absconding" in the Hong Kong crypto asset circle in 2024.

01. How did BitForex deceive and abscond?

Partners in the coin circle may be unfamiliar with the name BitForex, but in fact, BitForex is just a rebranding of the previous "CoinFather" exchange. For Sa Jie's team, which has long been concerned with and researched crypto asset crimes, BitForex can be considered an "old acquaintance." Even before BitForex absconded, the team often used this exchange as a typical case to explain specific criminal methods in crypto asset crime cases, such as "false liquidity trap" and "wash trading."

Since around 2019, BitForex has falsely inflated the liquidity of its exchange through frequent multi-account self-trading, cross-platform trading, and internal and external circulation of funds. However, in September 2023, it even claimed to be "one of the world's leading cryptocurrency exchanges by market capitalization, with a daily trading volume of approximately $2.6 billion."

In reality, the entire trading data of BitForex at the exchange level is astonishingly false. According to the crime research report data from the well-known third-party crypto asset crime platform Chainalysis, as early as 2019, BitForex's actual trading data was only about one-eight-thousandth of its publicly disclosed data. Even after its staggering 8000% falsification rate was exposed, due to the lack of strong regulatory measures, BitForex was still able to continue attracting a large number of retail investors by frequently listing various small coins and engaging in market-making activities.

When Sa Jie's team pulled the trading data of this exchange, they also noticed that there were clear signs of its absconding. Just two days before the absconding, BitForex's trading data began to plummet, and the trading data on February 22 even dropped sharply on the chart, showing an extremely abnormal trend, like a long-term patient suddenly being taken off life support.

After such a sharp drop in trading volume at small-scale exchanges, it is not surprising that they abscond, but what surprised everyone was how quickly this exchange did it. On February 23, 2024, BitForex directly withdrew $57 million from its online crypto asset wallet and then shut down its website, and the customer service in the crypto community deleted their accounts and disappeared. According to ZachXBT's report, to be precise, BitForex's wallet had a total outflow of $56.5 million, including $54 million in TRB, $1 million in ETH, and $250,000 in USDC.

02. How can ordinary retail investors stay focused in the bustling bull market?

1. Stay away from low-tier exchanges

Stay away from low-tier exchanges! Sa Jie's team has repeated this rule countless times in numerous occasions and in numerous popular science articles, and has always been tirelessly committed to spreading this rule to all places related to educating crypto asset investors.

I believe that for rational and intelligent partners, the reasons for staying away from low-tier exchanges do not need to be reiterated. However, based on the team's professional experience in criminal defense, they still want to remind everyone: even the most advanced scams will be exposed, and even the lowest-level scams will deceive some people. Smart people fall into the trap of low-tier exchanges mainly due to being overly confident in their investment skills and being deceived by short-term gains, thereby ignoring the essence of the scam. In other words, staying away from low-tier exchanges means staying away from the erroneous belief in "get rich quick" speculation and inappropriate greed.

2. Learn to use third-party data tools to distinguish between true and false

For investors, it is very important to use third-party data tools reasonably and correctly. Reasonably referencing various data can effectively help investors identify abnormal actions of platforms and potential market manipulation. For example, in the BitForex case, if investors used third-party tools to verify standardized trading data from February 22 to 24, 2024 (using the actual network traffic of the platform as a parameter in the algorithm to identify statistical data on whether the platform is engaged in market manipulation), they would have found that BitForex's actual trading volume had a significant discrepancy, with its actual trading volume being only about tens of millions of dollars, far less than the publicly claimed $20 billion.

In addition, Dune Analytics and Chainalysis are also commonly used on-chain data monitoring and analysis tools by Sa Jie's team. Reports on virtual assets regularly released by multiple platforms not only have a wide range of data sources but also have a certain degree of objectivity and can be used as investment references.

3. Pay close attention to personnel changes at exchanges

For crypto asset trading platforms lacking effective regulation, investors need to pay particular attention to whether there have been significant personnel changes or changes in shareholders at the platform recently. Based on the team's experience in handling cases, significant or abnormal personnel changes at crypto asset platforms often indicate that the platform may have changed ownership or altered its normal operating strategy in preparation for absconding or to achieve a de facto liquidation.

In the case of BitForex, ZachXBT's preliminary investigation results showed that in January 2024, the publicly known CEO of BitForex, Jason Luo, suddenly resigned, citing "a new leadership team will join BitForex and take the exchange to greater heights." Currently, apart from the issue of Jason Luo's resume falsification, Sa Jie's team has not yet found a causal relationship between his resignation and BitForex's absconding, but still advises everyone to pay close attention to such information.

03. How can mainland residents seek legal recourse in Hong Kong if they are defrauded?

In the case of BitForex, on March 4, 2024, the Securities and Futures Commission of Hong Kong (SFC) has issued a public announcement regarding the suspected fraudulent trading by the crypto exchange BitForex: Although BitForex is headquartered in Hong Kong, it does not have the required license under the regulatory framework for digital asset operators in the country. From this perspective, the judicial authorities in Hong Kong have jurisdiction over this fraud case. Therefore, if mainland residents suffer significant losses due to BitForex's fraudulent activities, they need to consider seeking legal recourse through the judicial system in Hong Kong to uphold their legitimate rights.

Sa Jie's team has previously explained the significant differences in the design of the system for recovering stolen assets and losses in criminal cases between Hong Kong and mainland China. In summary, the laws, judicial interpretations, and administrative regulations in mainland China require judicial authorities to have the duty to recover stolen assets and losses for victims in the process of handling economic criminal cases, and the parties involved in mainland China can supervise the work of judicial authorities in recovering stolen assets and losses but cannot directly participate in related work. In contrast, the judicial authorities in Hong Kong have jurisdiction only over the investigation and conviction of criminal cases related to economic crimes, and do not have the duty to recover stolen assets and losses for victims. Even if the confiscated property of criminal suspects may be stolen assets, it cannot be returned directly to the victims without following the statutory procedures. Therefore, an important way for victims to recover stolen assets and losses is to separately file civil lawsuits against criminal suspects in the courts in Hong Kong with jurisdiction.

Using BitForex as an example, mainland residents can currently report and accuse BitForex of committing fraud crimes directly to the Hong Kong police or the Joint Financial Intelligence Unit (JFIU) of the Hong Kong government through phone, online reporting, or by physically going to Hong Kong. They can provide relevant account information and explicitly request the police to freeze the relevant bank accounts and crypto asset accounts of the suspects. Additionally, if the amount of loss is significant and the related accounts have not been frozen by the police, and there is a risk of funds being transferred, they can engage a lawyer to apply for an emergency freezing order from the Hong Kong court to freeze the accounts involved in the case.

Of course, to protect their legitimate rights and interests, victims of the BitForex case will need to engage a lawyer to recover the defrauded funds. From the perspective of the causes of action for such litigation (similar to causes of action in mainland China), the main causes of action that can be chosen are: (1) Fraud; (2) Unjust Enrichment; (3) Legal Constructive or Resulting Trust, etc. Undoubtedly, there is a high possibility that the BitForex case constitutes fraud, and the plaintiff should be able to provide corresponding evidence to effectively prove the fraudulent behavior of BitForex.

Furthermore, if victims from mainland China want to file a civil lawsuit against BitForex, some evidence may not be obtainable on their own, such as the bank accounts of the suspects, account holder information, bank transfer records, details of crypto asset wallets, and other information and documents. In practice, this evidence is generally provided by the Hong Kong police or the banks and crypto asset platforms involved in the case. If the aforementioned institutions do not provide the relevant evidence, a lawyer can apply to the court for a disclosure order to obtain the necessary information and documents.

04. Conclusion

The Sa Jie team reminds everyone to be cautious when dealing with offshore crypto trading platforms and not to let short-term gains lead to financial losses. Remember, while you may be eyeing the platform's interest, the platform may be eyeing your principal. The Sa Jie team specifically advises that if related fraud cases occur in Hong Kong or Macau, although the process of seeking legal recourse may be cumbersome, there are still avenues for seeking justice. However, if the case occurs in other countries or jurisdictions outside the mainland, it may ultimately lead to the inability to recover the financial losses through legal procedures.

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