Double, then nothing: ASIC goes down in appeal over Block Earner’s crypto product

The battle between corporate regulator the Australian Securities and Investment Commission (ASIC) and Block Earner has swung in favour of the crypto platform after the Federal Court overturned a ruling that its Earner product was a financial product.

The battle over the fixed-yield digital asset-related Earner has been running for the past two years after ASIC took legal action against Web3 Ventures, the company behind Block Earner, arguing that the digital currency exchange needed a financial services licence to offer it.

Web3 Ventures, doesn’t have an Australian financial services licence licence (AFSL). The allegations spanned most of 2022 and early last year, the Federal Court accepted ASIC’s argument that Earner should be registered as a managed investment scheme, but in June last year relieved Block Earner from liability to pay a penalty.

ASIC appealed that decision fortnight later and Block Earner cross-appealed the Federal Court decision that it needed a AFSL for Earner.

The Full Federal Court heard ASIC’s appeal and Block Earner’s cross appeal last month and overturned the original decision, dismissing submissions that Earner was a financial product that needed to be regulated.

The judgment is here.

ASIC was ordered to pay costs, including appeals. The regulator said it’s considering the decision.

Block Earner cofounder and CEO Charlie Karaboga said the Court’s decision, vindicates their position

“We acted honestly and in good faith. From the outset, we  sought to ensure that our modern product suite could fit into a less-modern regulatory  environment,” he said.

“The Court initially found no penalty was warranted, yet ASIC sought to appeal that  decision, placing further stress on our company.” 

His cofounder, James Coombes, said the matter highlights the importance of ensuring regulations evolve alongside technology

“Without  modernised guidance, Australia risks losing fintech innovation to offshore markets more  supportive of responsible crypto entrepreneurship,” he said. 

“Over 4 million Australians have exposure to cryptocurrency. As a nation of early tech adopters, we deserve frameworks that are both protective and enabling.”

Block Earner voluntarily closed the Earner in November 2022 and the duo say they have no intention to reintroduce it following the Federal Court decision.

It’s the second major smackdown for ASIC over crypto products after running a similar case against Finder over its crypto wallet, Earn.

ASIC sued Finder Wallet for alleged ‘unlicensed conduct’ over Earn in 2023 just weeks after Finder announced it was shutting down its fixed return stablecoin product.

It a similar argument, the regulator’s case alleged that Finder Wallet contravened the Corporations Act by carrying on a financial services business without holding an AFSL and by offering a debenture without a disclosure document or a target market declaration.

But ASIC’s debenture claim was rejected by the court.