Thai Regulator Investigating Zipmex Over Potentially Unauthorized Earn Program

https://www.theblock.co/amp/post/200161/thai-regulator-investigating-zipmex-over-potentially-unauthorized-earn-program

The Securities and Exchange Commission of Thailand is investigating the local unit of troubled crypto exchange Zipmex over its earn program because of concerns that appear to include how the company represented the interest payments it made.

The regulator is demanding clarity from Zipmex Company Limited, Zipmex's Thailand unit, about how the program called "ZipUp/ ZipUp+" operated, according to a letter it sent to unit CEO Akalarp Yimwilai on Dec. 28 that was obtained by The Block. The letter states that Zipmex may have violated the country's regulations by offering the earn program without approval.

Under Thailand's Emergency Decree on Digital Asset Businesses, anyone who manages funds connected to digital assets needs to obtain a license from the country's Ministry of Finance, the regulator said in the letter, citing section 26 of the Emergency Decree which establishes penalties that range from fines to imprisonment. Zipmex managed customers' digital assets in the earn program by hiring Babel Finance, the regulator said.

The investigation appears to have been triggered by Zipmex Thailand's representation of how the earn program was operated, according to a disclosure letter dated Nov. 30 obtained by The Block in which Zipmex told rescue investor V Ventures that Zipmex Thailand had gone beyond what it initially said about the program.

'Marketing costs'

While the company first said that it was paying for the earn program "bonus" only with funds earmarked for marketing purposes, the disclosure letter suggests it had also deployed and managed customer funds — activities that would have required approval from the Thai regulator.

"When ZipUp was initially launched in Thailand, it was promoted that bonus payments derived from marketing costs supported by Zipmex Asia and that there was no deployment of funds," the company said in the disclosure letter. "However, this was not the case and funds (both ZipUp and non ZipUp funds) were deployed and part of the proceeds received were used to pay the bonuses under the ZipUp program."

Zipmex went on to say in the letter that it had reevaluated the risk, sought legal advice and implemented a new ZipUp+ structure in May. The service was eventually discontinued, and the company engaged an external consultant to conduct an investigation into the deployment of the funds in question.

"The SEC has also raised concern that ZLaunch and potentially ZipLock is a staking service and that Zipmex’s licensees do not extend to provision of staking products," the company said in the disclosure letter. 

Deadline looms

When asked about internal communications obtained by The Block which suggested the Thai regulator had been told the earn payments were marketing costs, Zipmex chief marketing officer Proud Limpongpan said the marketing department does not touch the ZipUp product.

"No marketing personnel has any legal knowledge, treasury knowledge, or have communications with the SEC," she said in an emailed response to questions from The Block. "Any inferences made to supposed internal documents are therefore inaccurate, have been taken out of context, and seem to have been illegally retrieved for the purpose of slander."

Zipmex declined to comment on the letter from the Thai SEC and contents of the disclosure letter. The regulator did not respond to multiple requests for comment.

Zipmex had to halt client withdrawals in July due to its exposure to Babel Finance and Celsius, two beleaguered crypto lenders that froze customer funds in June. Zipmex estimated its total exposure to Babel and Celsius at $53 million.

The Block reported in August that V Ventures, an existing investor of Zipmex, was on the cusp of investing $100 million in return for a 90% stake in the company. V Ventures has since then injected some of the total funds in Zipmex for operating expenses, a person with direct knowledge of the matter told The Block. The deal has yet to entirely close, the person added. Client withdrawals are yet to open up as well.

The Thai SEC has given Zipmex until Jan. 12 to respond to the letter.

"In case of failure to deliver within such specified time, the SEC would deem that you do not wish to clarify and will proceed with further actions as deem appropriate accordingly," it said.