Hong Kong Reevaluates Crypto Trust Rules After $500M Fraud Allegations

Hong Kong authorities are currently reevaluating the regulations governing crypto trust companies following allegations of fraud involving First Digital Trust and Justin Sun. The controversy began when Justin Sun reported a $500 million embezzlement at First Digital Trust to Hong Kong authorities, alleging severe financial misconduct that impacted the stablecoin. This incident has prompted a lawmaker, Johnny Ng, to call for a review of the trust company regulations, vowing that authorities will take action to address the issues raised by the allegations. The reevaluation of the rules is aimed at ensuring greater transparency and accountability within the crypto trust sector, which has been under scrutiny due to the high-profile nature of the allegations. The move by Hong Kong authorities underscores the region's commitment to maintaining the integrity of its financial system and protecting investors from potential fraudulent activities.

In an April 3 post on X, Ng assured investors that the city’s crypto regulatory framework remains robust and committed to investor protection despite the recent high-profile controversy. According to him, “Hong Kong has a legal basis and a healthy environment for protecting international investors and the Web3 industry. I urge international investors and tech practitioners not to worry about a single incident and to feel assured in continuing to invest and develop in Hong Kong.”

Ng acknowledged receiving multiple complaints this year involving suspected fraud tied to trust company practices. Considering this, he noted a clear need to review and strengthen the rules governing such firms. He said, “My office and the Anti-Fraud Alliance have indeed received more than one case this year involving suspected fraud utilizing the characteristics of trust companies. I believe there is a need to discuss how to improve the regulatory framework for relevant trust companies in the future to prevent criminals from exploiting loopholes for fraud.”

On April 2, Sun claimed that FDT faced insolvency after allegedly misappropriating nearly $500 million in client funds. According to Sun, FDT diverted Techteryx’s TrueUSD (TUSD) reserves by capitalizing on the inadequate regulatory oversight in Hong Kong’s crypto trust sector. Sun said, “This case shows that there appear to be clear loopholes in Hong Kong’s trust industry that can be used to circumvent financial and banking regulations. This not only poses risks to the public, but also threatens Hong Kong’s reputation as a global financial center.”

FDT, however, has pushed back firmly against the allegations. In its response, the company dismissed Sun’s claims as false and unrelated to its FDUSD stablecoin. FDT clarified that the dispute stems from TUSD operations and accused Sun of avoiding legal avenues in favor of a public smear campaign to damage its reputation. The trust company stated, “Justin Sun’s baseless accusations won’t distract from Techteryx’s own failures— our stablecoin FDUSD remains fully backed and solvent.” FDT confirmed it is seeking legal counsel and will take steps to defend its business and reputation from what it called a misleading narrative.