(Bloomberg) -- A crypto controversy has erupted in Hong Kong amid a probe of a trading platform that has ensnared social-media influencers and unleashed criticisms against the key regulator.

Hong Kong authorities accused crypto platform JPEX of cheating investors by luring them with high returns via advertisements and social media platforms, officials said during a press conference in the city on Tuesday. The police has seized millions in assets including property and jewelry, they said.  

“We see an alarming number of people affected and money involved,” Kung Hing-fun, senior superintendent of the Commercial Crime Bureau, said. “Most of them have no crypto investment experience. They barely understand the crypto platform or schemes.”

JPEX didn’t immediately reply to emails seeking comments on the authorities’ allegations. 

The scandal in Hong Kong, just three months into its new regime for digital assets, suggests the city’s goal of creating a crypto hub won’t be smooth sailing. JPEX’s troubles also cast a spotlight yet again on the regulatory and legal showdowns in the crypto world, which has been trying to tout the potential of blockchain technology. 

The digital assets market has achieved only a modest recovery from last year’s $1.5 trillion rout after high profile blowouts like FTX and a US regulatory squeeze on exchanges such as Binance. 

Dubai-headquartered JPEX is a comparatively small platform that has been on a heavy marketing spree over the past months in Hong Kong, roping in local stars and social media influencers. 

JPEX has been issuing tough-worded statements since the regulator warned against it. The three-year old firm claimed actions against the platform would set back Hong Kong’s Web3 dream. On Monday, it slammed the regulator for practices that disrupt market order, expressing “extreme disappointment.” It also shut down some trading during the ongoing police investigation.

The Securities and Futures Commission had last week warned the public of JPEX being an unregulated entity, the first to be named under the new licensing regime. In subsequent days, reports have alleged that JPEX has raised administration fees so high as to effectively bar user asset withdrawals. 

More than 1,600 complaints were made to local police against JPEX involving HK$1.2 billion ($154 million), according to officials at the press conference. Eight people have been arrested, they said.

“From the get go, Hong Kong has said that regulation will be tight to encourage responsible and sustainable innovation.” said Angela Ang, a senior policy adviser at blockchain intelligence firm TRM Labs. “These latest actions send a clear, tangible signal about the kind of crypto hub they want to build.”

--With assistance from Sunil Jagtiani.

(Updates with comments from press conference throughout)

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