OKEx Founder Detained for Suspected Fraud

The founder of the world’s second biggest cryptocurrency exchange OKEx and exchange services provider OKCoin, Star Xu has been detained in China for suspected fraud. According to the local media, Xu was held at the Weifang Xincun police station in Shanghai.

The Background

According to local sources, people who had invested in a relatively obscure project called WFEE Coin, a startup in which Xu is also a shareholder, filed a complaint with the Shanghai police that the company was involved in fraudulent activities. The police therefore detained Xu for questioning because of these complaints.

WFEE Coin issued its tokens and then sold them through its company website. If the company has been involved in fraud of any kind, then, as a shareholder in the company, Xu can be held accountable for it. Xu may be a shareholder but he denies that his company has any connection with this startup.

Previous Scandals at OKEx

Despite OKEx’s operations head, Andy Cheung tweeting that facts need to be checked and that not all allegations are true, the company is actually no stranger to scandal.

Just last month, in August, OKEx was in the spotlight for having forced a $420 million clawback. A clawback is the process of recovering money that has already been disbursed. In OKEx’s case, one single trader on their platform had been allowed to amass a $460 million position, something that couldn’t be filled even with liquidation.

Since the company was unable to fill that position with its own funds, it was forced to skim the larger portion of the position from the profits of other users. This action led not only to a massive scandal but also concern that the crypto space was now getting infected with traditional bad banking practices.

Also in August, an investor initiated a lawsuit against OKCoin, alleging that he had not been able to withdraw his Bitcoin Cash funds in time after the altcoin’s hard fork in 2017, because of which he lost out on being able to sell his BCH when the coin was at its all-time high.

Prior to this scandal, the exchange was forced to refute claims that it had participated in a market manipulation that was so extreme that it led to the cryptocurrency markets crashing in April. In fact, the CEO of the exchange, Chris Lee, resigned just before OKEx was accused of inflating its trading volumes by more than 90%.

This fraud investigation is just the latest in all the controversies that have surrounded Xu and his companies. Xu was released late in the evening from the police station, however, the investigation on accusations of fraud will continue.