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Block Earner dodges massive fine

The Federal Court has absolved Block Earner from paying a penalty for trading without a financial services licence, which ASIC believes should have been $350,000.

While Judge Jackman determined that while Block Earner, which invested in cryptocurrency, operated an unregistered managed investment scheme (MIS) without holding an AFS Licence (AFSL) with respect to the "Earner" product, the company was relieved of any liability to pay a fine.

"The Court found Block Earner's contraventions to be serious. However, the Court relieved Block Earner from liability to pay a penalty on the basis, among other things, that it acted honestly and not carelessly when it offered the Earner product," ASIC said in response to the verdict.

"ASIC took this case because it was concerned that Block Earner offered the Earner product without 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."

Block Earner is the trading name of Web3 Ventures. It was founded in 2021 by Charlie Karaboga and Jordan Momtazi and backed by Framework, Coinbase, Longhash, and Sequoia Capital.

Between March and November 2022, ASIC found Block Earner provided unlicensed financial services and operated an unregistered MIS when offering its fixed-yield Earner product.

Judge Jackman found overall that "Block Earner acted honestly" and that Karaboga "neither intended nor understood that the Earner product was a managed investment scheme or an investment facility."

Karaboga also sought advice from the company's head of risk and compliance and received legal advice from Gilbert & Tobin before launching the Earner product.

Judge Jackman also argued that Block Earner was not "careless or imprudent, let alone guilty of carelessness or imprudence of such a degree as to demonstrate that no genuine attempt at all had been made to carry out the requirements of the Act or the general law."

Judge Jackman concluded that "it is appropriate that no penalty be awarded" and the company should be relieved under Corporations Act s 1317S, which is the relief from liability for contravention of civil penalty provision.

"Even if I had not granted that relief, I would not have awarded any penalty. In stating that conclusion, I rely on the matters already discussed in relation to s 1317S. I also give particular weight to the constrained financial circumstances of Block Earner, and the need to ensure that the penalty does not cross the line from deterrence to oppression," Judge Jackman said.

ASIC said it is reviewing the decision.

Read more: Block EarnerASICJudge JackmanFederal CourtCharlie KarabogaCoinbaseFrameworkGilbertJordan MomtaziLonghashSequoia CapitalWeb3 Ventures