The founder of one of the world’s largest cryptocurrency exchanges, OKEx, was questioned by Shanghai police on Monday after being mobbed by angry investors.
Star Xu was tracked down at his hotel by a group of seven investors, who accused OKEx of manipulating trade volume after the slumping price of bitcoin earlier this month prompted a mad rush of customers desperate to offload depreciating financial assets, business news outlet Jiemian reported Wednesday. Eventually, the police got involved.
On Sept. 5, the price of bitcoin — the world’s most widely traded cryptocurrency — fell by as much as 9.8 percent. Shortly afterward, the OKEx trading platform started crashing, leaving investors unable to divest their assets. As a result, many suffered heavy losses. Though OKEx maintains that overwhelming web traffic caused the crashes, investors have accused the exchange of foul play — of intentionally going offline for financial gain, or to limit losses.
An investor surnamed Lin told Jiemian that he had been trading on OKEx since July, and had lost over 480,000 yuan ($70,000) when bitcoin slumped on Sept. 5. “I was watching the price slide — it was almost as if it was jumping off a cliff and I was unable to save it,” he recalled. “Basically, I couldn’t cash out because the system kept crashing.”
Launched in January 2014, OKEx is the world’s second-largest cryptocurrency exchange by trade volume. The value of daily transactions is around $800 million, while monthly transactions total $26 billion. The exchange accepts over 530 digital tokens, and according to its website serves millions of customers in over 100 countries.
OKEx’s founder, Xu, was in Shanghai to attend the grand opening of the company’s new branch office. But on Monday, the investors ambushed him at his hotel near the Bund, the city’s iconic riverside promenade. When police arrived, the investors accused Xu and OKEx of defrauding them. Later that evening, Xu posted a succinct Chinese proverb on his Weibo microblog account: “Wise men don’t spread rumors!”
Meanwhile, Andy Cheung, OKEx’s head of operations, tweeted on Wednesday afternoon to explain that when confronted by the investors, Xu had called the police, who had invited everyone to the station to get to the bottom of the dispute. “Star stayed to clarify and then left afterwards,” Cheung wrote.
Regarding Star Xu's News:— Andy Cheung OKEx (not giving away OKB) (@AndyC0125) September 12, 2018
1. As far as I know, Star called the police for help when he was surrounded by a group of people in Shanghai. The police arrived on the scene and invited all of them to the police station.
Late Tuesday, Lu Jun, a police officer on duty while Xu was at the station said that all documents and materials pertaining to the case would be transferred to police in Beijing, where Xu’s company is registered, according to Jiemian. Another media outlet, Cailian Press, reported that Xu was released on Tuesday night, less than 24 hours after he was brought in.
Despite a nationwide ban on initial coin offerings and cash-to-coin trading, digital currencies are still immensely popular among Chinese investors, who have found creative ways to skirt the rules. But last month, several state-level government departments issued a joint warning against throwing money into volatile or illegal financial investment schemes that might seem appealing simply because they contain buzzwords like “blockchain” or “cryptocurrency.”
Earlier this year, OKEx moved its business registration from Belize to Malta to take advantage of more favorable policy. The exchange’s main rivals — Binance and Huobi — opted to register in Malta and Singapore, respectively, also for economic reasons.
This is not the first time OKEx has been accused of improper or illicit intervention in the market. On March 30, when the price of bitcoin plunged below $4,800 on OKEx while holding steady at $7,000 everywhere else, the exchange announced that it would retroactively cancel the day’s bitcoin futures transactions. And on Aug. 3, the platform explained that it had liquidated an account for suspected market manipulation after it had bought an enormous quantity of futures.
Editor: David Paulk.
(Header image: People walk past an advertisement for cryptocurrency trading platform OKCoin during an exposition in Shanghai, June 14, 2014. Zhu Lan/IC)