Highlights:
- The Australian federal court ruled Block Earner “acted honestly” despite offering unlicensed crypto yield products.
- Block Earner avoided a $234,000 fine, though it suffered reputational damage and incurred substantial legal fees.
- ASIC is reviewing the court’s decision to dismiss the penalty request for Block Earner’s unlicensed “Earner” products.
The Australian Federal Court relieved fintech firm Block Earner from paying a penalty in the legal action brought by the Australian Securities and Investments Commission (ASIC) over unlicensed crypto yield-bearing products. The court ruled that Block Earner offered its “Earner” product without a financial services license but acted honestly in its operations.
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Block #Earner has been spared from paying a penalty by #Australia‘s federal court, despite being found to have offered unlicensed #crypto yield-bearing products.
The court ruled that Block Earner acted honestly and made efforts to obtain legal advice before launching its… pic.twitter.com/qlJnrS7W9n— TOBTC (@_TOBTC) June 4, 2024
Court Ruling and Company Response
Justice Ian Jackman recognized Block Earner’s efforts to comply with regulations when launching its yield-bearing “Earner” product. The company had conducted internal research and sought legal advice, concluding that a license was not required.
Charlie Karaboga, founder and CEO of Block Earner, emphasized that the company acted transparently and within legal boundaries. “Getting a legal opinion before we launched the product showed that we acted honestly and did everything that we could do as a startup,” Karaboga said.
However, despite the favorable ruling, Karaboga refrained from calling it a “fair ruling,” noting the significant reputational damage and legal fees incurred over the past two years. He highlighted that the only positive outcome was avoiding a financial penalty.
ASIC’s Position and Future Implications
ASIC had sought a civil penalty of $234,000 (350,000 Australian dollars) for Block Earner, but the court dismissed this request. Block Earner had proposed an alternative penalty of $40,000 (60,000 Australian dollars). This amount is three times what they earned from the product in question.
Despite this, Justice Jackman ruled that no penalty should be awarded, stating, “It is appropriate that no penalty be awarded, consistent with my conclusion that Block Earner should be relieved from liability.”
ASIC announced in a June 4 press release that it is reviewing the decision, indicating that further legal actions or appeals could be on the horizon. This announcement reflects the ongoing regulatory challenges facing cryptocurrency and fintech companies in Australia.
Background and Broader Context
In November 2022, ASIC sued Block Earner, alleging that the “Earner” and “DeFi Access” products required a financial services license as they were classified as managed investment schemes. Managed investment schemes involve pooling investor funds to purchase assets. Block Earner’s “Earner” product provided yield on loans in USD Coin, Bitcoin, Ether, and PAX Gold (PAXG). It operated from March 17, 2022, to November 16, 2022, before the company ceased offering it prior to the court proceedings.
In a related development in February, Justice Jackman ruled that Block Earner’s “Earner” products required an Australian Financial Services License (AFSL). However, the court found that the “DeFi Access” product did not operate under a managed investment scheme. Therefore, it did not need an AFSL despite facilitating the use of the Aave lending protocol.
ASIC has been actively targeting unlicensed crypto firms in Australia. In December 2022, ASIC sued Finder Wallet Pty Ltd, claiming its Finder Earn program was unlicensed. However, the court ruled in March 2024 that ASIC had not established that the Finder Earn product was debentured under the Corporations Act.
Amidst these regulatory actions, Australia’s Treasury is working on new regulations for licensing and custody rules for crypto asset providers. These regulations are expected to be ready by 2024. These regulations will require related platforms to transition to the new regime within 12 months.
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