Two Japanese Crypto Exchanges Withdraw Applications To Operate

John Medley
  • Tokyo GateWay and Mr. Exchange have voluntarily withdrawn their applications to operate as crypto-asset exchange in Japan
  • Japan's Financial Services Agency have been enforcing higher security standards for all crypto-asset exchanges in the wake of the Coincheck hack

Since the infamous Coincheck hack in January that saw over $500 million in NEM stolen, Japan’s FSA (Financial Services Agency) has started improving the security of crypto exchanges. Nikkei reported on Thursday that two crypto exchanges in Japan have withdrawn their applications to operate.

Contrary to misleading articles, Tokyo GateWay and Mr. Exchange have voluntarily withdrawn their applications to operate as crypto-asset exchanges in Japan.

It is thought that Tokyo Gateway and Mr. Exchange had insufficient security procedures and standards making it highly unlikely that they would have met the FSA's stricter requirements. Making an application to operate a fruitless endeavour.

The FSA ordered all crypto exchanges to improve security in the wake of the Coincheck hack. Two exchanges -  Bit Station and FSHO - were suspended for 30 days and 5 exchanges - Tech Bureau, GMO Coin, Mister Exchange, Bicrements and Coincheck - had to conduct a full security audit and provide a “Security Improvement Plan” by March 22nd.

Japan’s Crypto Markets Mature Under FSA Guidance

Despite the numerous reports of Japanese exchanges being forcefully closed down the reality is different. The FSA has imposed security standards to help prevent Coincheck or MtGox style hacks. A process that has fortunately identified several security flaws in numerous exchanges. These exchanges have been left with a choice of improving security or shutting down. It is the FSA’s hope to mature the crypto market and improve standards.

As the volumes of crypto-asset trading falls and competition ramps up, the crypto exchange business model is becoming less lucrative. Analysts expect the number of exchanges to drop and the market to consolidate around a small group of exchanges. However, it is thought to be a positive progression for the market improving liquidity and security.

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Cryptocurrency Scammers Fined $400,000 for Impersonating CFTC

Samuel Haig

The United States Commodities Futures Trading Commission (CFTC) has received a default judgment from a Texas federal court ruling in favor of the regulator’s case against Diamonds Trading Investment House. The company is accused of operating a fraudulent foreign exchange platform and impersonating the CFTC.

The ruling was made after Diamonds Trading Investment House failing to respond to the charges, and as such little is known of location and identity of the defendants. The court has ordered the defendants to pay nearly $400,000 in combined civil penalties and restitution. The judgment was filed by Judge Reed C. O’Connor of the U.S. District Court for the Northern District of Texas.

Defendants Use Facebook and Email to Promote Fraudulent Investment Scheme

The CFTC's complaint was originally filed against defendants John Doe 1 also known as (a.k.a) Morgan Hunt doing business as (d.n.a.) Diamonds Trading Investment House, and John Doe 2 a.k.a. Kim Hecroft d.n.a. First Options Trading on Sep. 28, 2018. Hecroft is purportedly of Baltimore, Maryland, while Hunt is purportedly of Arlington, Texas. The regulator attempted to serve the complaint via email, before filing a court order with Texas court after receiving no response from the defendants.

The defendants promoted fraudulent investment schemes involving cryptocurrencies, leveraged foreign currency contracts, binary options, and diamonds. Hunt and Hecroft falsely promised “a passive investment return of 40-60% after a 30 day trading cycle,” and were successful in scamming at least two people - one of whom received a disability pension. The CFTC stated:

The Defendants used Facebook and email to fraudulently solicit Bitcoin from members of the public,  falsely claimed that they would use customer funds to invest in trading for the benefit of the customers, misrepresented their experience and track record as traders and portfolio managers, falsely told customers that they could not withdraw their purported investment profits without first paying a tax to the CFTC, and misappropriated customer funds.

Defendants Fined $180,000 Plus Restitution

Hunt and Hecroft were also found to have impersonated a CFTC investigator, forged documents ostensibly authored by the CFTC’s General Counsel, and provided fake account statements to their victims. Hecroft also produced a pretend “Certified CryptoCurrency Expert” license that he purported was issued by the Blockchain Council.

James McDonald, CFTC Director of Enforcement, stated:  “As the CFTC has repeatedly warned, retail customers should exercise caution before buying or trading cryptocurrencies on unfamiliar Internet websites or social media.  The CFTC reiterates that it does not collect taxes or fees, and will continue to educate the investing public and aggressively pursue misconduct in this arena.”

The court order requires both Hunt and Hecroft to pay restitution and a $180,000 civil monetary penalty each and imposes permanent registration and trading bans on the defendants.