Sydney-based fintech Block Earner has been vindicated in its high-profile stoush with the corporate regulator after the Full Federal Court overturned an earlier court ruling and found that the company’s crypto-related Earner product did not require a financial services licence to operate.
The win, labelled by Block Earner as a “decisive victory for Australia’s digital asset industry”, has cleared Block Earner of any wrongdoing and extinguished any risk of penalties sought by the Australian Securities and Investments Commission (ASIC).
The case was an own goal for ASIC which first brought the case against Block Earner in 2022.
While the Federal Court originally found in June last year that Block Earner’s USD Earner, Gold Earner and Crypto Earner products were being provided without a financial services licence, the liability was relieved as the judge found the company had acted honestly and not carelessly.
But a frustrated ASIC appealed the decision, arguing that by imposing no penalty the court "failed to give effect to the purposes of specific and general deterrence".
Following the latest Full Federal Court ruling that dismissed ASIC’s appeal, Block Earner can claim a complete victory as the court also overturned the previous ruling that its now discontinued Earner product constituted a managed investment scheme or financial investment facility under corporate law.
The decision automatically extinguishes any claim by ASIC for penalties against Block Earner.
The company, which was founded in 2021 by Jordan Momtazi and Charlie Karaboga, provides consumers access to digital currencies and decentralised finance platforms.
Karaboga, the CEO of Block Earner, has previously said that from the outset the company “did everything within our power to comply, including obtaining legal advice and creating a comprehensive risk framework”.
In response to the Full Federal Court ruling, Karaboga today says the decision vindicates its position and confirms that the founders 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,” says Karaboga.
“The court initially found no penalty was warranted, yet ASIC sought to appeal that decision, placing further stress on our company.”
Through its Earner product, which was offered between March and November 2022, Block Earner customers were allowed to “loan” specified cryptocurrency in return for interest paid at a fixed rate.
In a key finding, the court ruled that while Block Earner’s customers loaned cryptocurrency under fixed terms, there was no pooling of these contributions to generate financial benefits for members, which is an essential component of a managed investment scheme.
“This case highlights the importance of ensuring regulations evolve alongside technology,” says James Coombes, the chief commercial officer of Block Earner.
“Without modernised guidance, Australia risks losing fintech innovation to offshore markets more supportive of responsible crypto entrepreneurship.”
Despite the win, Block Earner does not plan to reintroduce the Earner product to its service offering after voluntarily closing it down in November 2022 after ASIC raised its concerns.
The company says ASIC’s prosecution action has been “closely watched” by the fintech sector to determine the application of Australia’s financial services laws to blockchain products.
“Over four million Australians have exposure to cryptocurrency,” says Coombes.
“As a nation of early tech adopters, we deserve frameworks that are both protective and enabling. Block Earner remains committed to building trusted, transparent, and compliant financial products for everyday Australians.”
The Full Federal Court ordered ASIC to pay costs of the proceedings, including appeals.
The corporate regulator says it is considering the decision.
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