Two Chinese Exchanges Help Themselves to User Funds

August 23, 2017
318 Views

Huobi and OKCoin have been investing client’s funds in high risk options for their own gain.

It has come to light that two of China’s largest Bitcoin exchanges, Huobi and OKCoin, have been using idle client funds to make investments in “wealth management products“ which are often high-yielding and risky.

Collectively over one billion yuan ($150 million) of client funds was used without permission,, state newswire Xinhua reported.

The central bank weighs in

Xinhua’s damning report on OKCoin and Huobi came about because the People’s Bank of China had been investigating and clamping down on Bitcoin trading in recent months.

Fearing capital flight and money laundering, the central bank has waded into the quagmire of  unregulated exchanges operating in China. Earlier in the year it issued warnings about Huobi and OKCoin, expounding on the risks surrounding them.

This report led to the exchanges stopping their zero-fee trading and margin trading, in order to conform to the requirements of the central bank.

The exchanges also famously stopped withdrawal services for quite awhile, only reactivating them about two months ago.

Murky details

There were no details in the report about the financial products Huobi and OKCoin invested in using those client funds and Huobi declined to comment. A representative for OKCoin didn’t respond to a request for comment either.

The common practice among US and European exchanges is that the finds that are accumulated by the exchanges are simply held, rather than used. Anything other than that means that the exchange is essentially operating a fractional reserve.

You may be interested

The Legal Risk to ICOs That No One’s Talking About
Crypto News
5 views
Crypto News
5 views

The Legal Risk to ICOs That No One’s Talking About

btcethereumadmin - February 22, 2018

Jared Marx is an attorney at the Washington, D.C. law firm Harris, Wiltshire & Grannis. He represents companies and individuals…

66% of Funding to Stop the AI Apocalypse Comes from Crypto Donors
Crypto News
10 views
Crypto News
10 views

66% of Funding to Stop the AI Apocalypse Comes from Crypto Donors

btcethereumadmin - February 22, 2018

Have you ever suffered from existential dread about what will happen when the smart contracts will be smarter than you?…

Bitcoin Skeptic Dennis Gartman Duped by Dubious Blockchain Investment
Blockchain
9 views
Blockchain
9 views

Bitcoin Skeptic Dennis Gartman Duped by Dubious Blockchain Investment

btcethereumadmin - February 22, 2018

‘Commodities King’ Dennis Gartman has been left with a red face and diminished pension fund after investing in a dubious…

Leave a Comment

Your email address will not be published.