ASIC loses Block Earner case

The Federal Court has vindicated Block Earner by overturning a decision that it needed an AFSL to offer its Earner product and dismissing ASIC's appeal to impose penalties on the digital asset platform.

Justices O'Callaghan, Abraham and Button yesterday dismissed ASIC's appeal to Judge Jackman's decision made last June to relieve Block Earner or Web3 Ventures of any liability and pay a fine.

ASIC believed that Block Earner should pay a penalty of as much as $350,000.

Judge Jackman at the time said Block Earner acted honestly and not carelessly in offering the product sought legal advice beforehand. This is despite a ruling in February of the same year stating that Earner was operating as a managed investment scheme without a licence.

On 9 July 2024, Block Earner cross-appealed the Federal Court's decision that it needed an AFSL to offer its Earner product. Justices O'Callaghan, Abraham and Button have now overturned that ruling.

They determined that Earner was neither a financial product, managed investment scheme, or derivative under definitions of the Corporations Act.

The now-defunct Earner product was offered from 17 March 2022 until 16 November 2022. It enabled customers to loan specified cryptocurrency in return for interest paid at a fixed rate.

Block Earner maintains that its customers loaned cryptocurrency under fixed terms, receiving interest in return and that there was no pooling of contributions for the purpose of generating financial benefits for members, which is essential for a managed investment scheme.

On its website, Block Earner said: "Deposits into the Block Earner 7% fixed option, automatically convert your Australian dollars into the USD-backed stablecoin (USDC) via our exchange services and these stablecoins are then lent to us. Block Earner delivers risk-adjusted, high returns by working exclusively with partners whose investment strategies are proven, sustainable and measured."

Block Earner co-founder James Coombes said the Earner product was voluntarily closed in November 2022 and there is no intention to reintroduce it, despite the ruling confirming it was not a regulated financial product of the kind alleged by ASIC.

"This case 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.

Block Earner co-founder and chief executive Charlie Karaboga said this "brings closure to a long and difficult process, one that showed how hard it is to apply existing financial services law to new and fast-changing technologies like crypto."

"We understand regulators are working in a tough environment. The current legal framework was not made for DeFi or digital assets, yet they're expected to regulate these things as fairly as possible. That's a huge challenge," he said.

ASIC now must pay for costs of the proceedings, including appeals. ASIC said it is considering the decision.