Block Earner Relieved of Liability to Pay a Penalty in Significant ASIC Case
SYDNEY, June 5, 2024 /PRNewswire/ — In a resolution of important proceedings with implications for the crypto/startup ecosystem, Block Earner has been relieved of liability to pay a penalty in a high-profile case brought by the Australian Securities and Investments Commission (ASIC). This decision not only relieves Block Earner of any financial penalty, but also acknowledges the reputational damage resulting from inaccurate statements made by ASIC in a press-release following the Court’s earlier decision about liability.
While the Court earlier found that Block Earner had contravened financial services law in respect of a previous product offering (no longer offered), the Court was satisfied that Block Earner had acted honestly, and consistently sought to conduct its business lawfully. The Court also found that the company made genuine attempts to comply with the Corporations Act, and that there was no evidence suggesting that Block Earner acted carelessly or imprudently. The Court and ASIC also both agreed that no customers had suffered loss as a result of the conduct in question.
Context, background and liability judgment
In November 2022, ASIC initiated proceedings against Block Earner, alleging that the company required an Australian Financial Services Licence (AFSL) for its Earner and Access products, which offered customers access to yield related to cryptocurrency products. The regulator characterised this as a ‘test case’ to explore the applicability of financial services law to crypto-related products.
Block Earner argued in the proceedings that its products did not constitute financial products having regard to the technical definitions of the Corporations Act. The Earner product, which offered fixed yield, was sunset in November 2022, and all customers were made whole, including any interest owed.
On 9th February 2024, Justice Jackman of the Federal Court of Australia found that Block Earner had contravened the Corporations Act by offering the Earner product without an AFSL and appropriate ASIC registration. However, the Court found that Block Earner did not need an AFSL for the Access product and the claims brought by ASIC regarding the Access product were dismissed. For a more detailed summary of that judgment see: https://www.gtlaw.com.au/knowledge/federal-court-judgment-asic-v-block-earner
Court’s Decision and Reasoning
On 15 May 2024, a further hearing was held to determine whether Block Earner would be required to pay a penalty in respect of the contraventions (and if so the amount of the penalty).
Today, the Court delivered judgment. Justice Jackman was satisfied that Block Earner should be relieved from having to pay a penalty in relation to its contraventions relating to the Earner product. In determining that Block Earner should be relieved from paying a penalty, Justice Jackman acknowledged that he was “satisfied that Block Earner acted honestly”, including because in seeking to consider whether Block Earner was offering or providing financial products that required an AFSL, Block Earner obtained legal advice on that question. The judgment also recognised that Block Earner’s participation in policy discussions and seeking to engage with the government on proposals related to cryptocurrency showed a willingness to engage with government and regulatory bodies on effective ways to regulate crypto-related products and services.
Further, the Court was satisfied that this engagement evidenced that Block Earner has at all times sought to conduct its business in a lawful manner and has not consciously sought to provide cryptocurrency in a way that contravenes the Corporations Act. Further, the Court acknowledge Block Earner’s evidence on each occasion when Block Earner has identified that it does require a licence to provide a product, it has sought and obtained the appropriate authorisations.
The Court also commented on a media release that ASIC made following the liability judgment. His Honour found that the media release, which has now been withdrawn, had a tendency to lead readers into error (albeit that was unintentional on ASIC’s part) because it indirectly suggested Block Earner needed an AFSL for its existing products (which was not the case as Earner had been withdrawn).
Because Block Earner was successful in its argument that it ought to be excused from a penalty, the Court also found that ASIC is required to pay Block Earner’s costs relating to the penalty hearing.
Impact on the Crypto Industry
The conclusion of these proceedings, pending any appeal, marks significant progress for the crypto industry, which has faced regulatory uncertainty and active regulatory enforcement action globally.
Charlie Karaboga, CEO of Block Earner, stated, “From the beginning, it was never our intention to break or circumvent the rules. As a startup, we did everything within our power to comply, including obtaining legal advice and creating a comprehensive risk framework. While we are obviously disappointed about the findings of contravention in relation to the Earner product, we are pleased that the judge recognized our honest efforts and relieved Block Earner from liability for the penalty.”
Challenges and Damages
Despite the favourable ruling today, the proceedings have been burdensome on Block Earner, including incurring over $300,000 in legal fees defending these proceedings, significant reputational harm, and the loss of key partnerships.
A Path Forward
Block Earner remains committed to fostering innovation and providing clarity to its customers. The company believes that these proceedings will help give further regulatory clarity to other startups, helping them to navigate the regulatory landscape with greater confidence, and continue to innovate for the benefit of Australian consumers, and within the framework of the relevant laws and regulations.
This press release is intended to provide a balanced view of the recent court decision and its implications for the crypto industry, encouraging more publications to highlight the positive impact of the ruling on innovation and regulatory clarity.
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About Block Earner
Block Earner is an Australian-based FinTech powered by blockchain technology. We’re bringing the utility of a new era in digital currencies to the people. Recreating crypto products in an open and transparent way. Disrupting a centuries old system and presenting a new way forward for people and their money.
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SOURCE Block Earner
