ASIC has commenced civil penalty proceedings in the Federal Court against fintech company Block Earner alleging it provided unlicensed financial services in relation to its crypto-asset based products and that it operated an unregistered managed investment scheme.
Block Earner offered a range of fixed-yield earning products based on crypto-assets under the names USD Earner, Gold Earner and Crypto Earner (collectively, the Earner Products).
ASIC alleges that the Earner Products were financial products that should have been licensed because the products were a managed investment scheme, a facility through which a person makes a financial investment, and/or a derivative.
ASIC Deputy Chair Sarah Court said, ‘We are concerned that Block Earner offered financial products without appropriate registration or an Australian Financial Services licence, leaving consumers without important protections. Simply because a product hinges on a crypto-asset, does not mean it falls outside financial services law.’
‘ASIC is aware that many consumers are interested in purchasing or investing in crypto-assets. Crypto-assets are risky, inherently volatile and complex and ASIC remains concerned that potential investors in crypto-assets may not fully appreciate the risks involved. ASIC supports the development of an effective regulatory framework covering crypto-assets to protect consumers and investors.’
ASIC is seeking declarations, injunctions, and pecuniary penalties from the Court.
The date for the first case management hearing is yet to be scheduled by the Court.
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Background
Block Earner is the trading name of Web3 Ventures Pty Ltd. It does not hold an AFS licence. It is an AUSTRAC-registered digital currency exchange.
Block Earner has been an authorised representative of Flash Partners Pty Ltd since 1 August 2022. This authorisation does not relate to the Earner Product.
Entities providing services in relation to crypto-asset-related products should be aware that some such products may be financial products. Information Sheet 225 Crypto-assets (INFO 225) provides guidance on the circumstances in which a crypto-asset-related offering may be a financial product.
A range of Australian laws apply to entities giving advice, dealing, providing insurance, or providing other intermediary services for crypto-assets that are financial products. These include the requirement to hold an AFS licence or appropriate authorisation by an AFS licence holder.
ASIC has also taken other recent action to protect investors from harms posed by crypto-asset offerings.
On 25 October, ASIC commenced civil penalty proceedings against BPS Financial Pty Ltd over allegedly misleading statements made in relation to its crypto asset Qoin (22-287MR).
On 17 October, ASIC placed interim stop orders preventing Holon Investments Australia Limited from offering or distributing three funds to retail investors because of non-compliant target market determinations. Each of the funds is invested in a highly volatile crypto asset and ASIC was concerned Holon has not appropriately considered the features and risks of the Funds in determining their target markets. Holon has commenced winding up the funds (22-278MR).
ASIC’s Moneysmart website has information for consumers about the risks of investing in crypto-assets.
Editor's note:
The matter has been listed for hearing on 21 March 2023.
Editor's note 2:
A further case management hearing has been listed for 22 June 2023.
Editor's note 3:
On 4 April 2023, this media release was updated with an Amended Concise Statement and Amended Originating Process.
Editor's note 4:
The case management hearing listed on 22 June 2023 has been adjourned to 9:30am on 6 November 2023 as the parties agreed orders prior to the hearing. Download the orders dated 22 June 2023 (PDF 83 KB).
Editor's note 5:
The matter has been listed for a hearing on liability on 31 January 2024.