Block Earner case drags on as ASIC seeks to take crypto ruling to the High Court

The corporate watchdog is refusing to give up its battle against Block Earner after announcing plans to appeal a Full Federal Court decision this year that vindicated the Sydney-based fintech over three crypto products it offered to consumers in 2022.

The Australian Securities and Investments Commission is seeking special leave to appeal the Federal Court decision in April which found that Block Earner’s USD Earner, Gold Earner and Crypto Earner products did not require a financial services licence to operate.

The decision was a blow to ASIC but a major win for Block Earner which described the outcome as a “decisive victory for Australia’s digital asset industry”.

The decision left egg on ASIC’s face after the securities regulator initially secured a decision in its favour last year but was disappointed that the Federal Court imposed no penalty on Block Earner after ruling that the company had acted honestly and not carelessly.

A frustrated ASIC appealed the decision, arguing that by imposing no penalty the court had "failed to give effect to the purposes of specific and general deterrence".

Unfortunately for ASIC, its appeal led to a complete vindication for Block Earner as the Full Federal Court not only rebuffed the regulator’s demands for a penalty but also ruled that Block Earner’s long-discontinued Earner products were not financial products at all.

The Earner products were offered by Block Earner between March and November 2022, through which customers were allowed to “loan” specified cryptocurrency in return for interest paid at a fixed rate.

Block Earner discontinued the products after ASIC first raised its concerns in 2022.

ASIC is seeking a High Court ruling on “what falls within the definition of financial product” and for the court to “clarify when interest-earning products and products involving a conversion of assets from one form into another are regulated”.

“The definition of financial product was drafted in a broad and technology-neutral way, and ASIC believes it is in the public interest to clarify this,” says the regulator.

“This clarification is important as it applies to all financial products and services whether they involve crypto-assets or not.”

Block Earner was founded by Jordan Momtazi and Charlie Karaboga in 2021 to provide consumers access to digital currencies and decentralised finance platforms. The company describes itself as a “next-gen fintech connecting fiat and digital currency rails”.

After the company was vindicated by the Full Federal Court earlier this year, Karaboga, the CEO of Block Earner, was jubilant but conceded that ASIC's appeal last year seeking penalties against Block Earner had put “further stress” on the company.

Block Earner has always maintained that it did everything within its power to comply with the law, “including obtaining legal advice and creating a comprehensive risk framework”.

“From the outset, we sought to ensure that our modern product suite could fit into a less-modern regulatory environment,” said Karaboga after the recent court win.

Commenting today on the latest legal action by ASIC, a spokesman from Block Earner notes that the matter, as outlined in the submission, "now relates to a broader legal question around the definition of a financial product, which extends well beyond Block Earner and the crypto sector".  

"We believe the Full Federal Court’s April ruling was a strong and well-reasoned decision that upheld the integrity of our operations," the spokesman tells Business News Australia.

"We remain confident in the soundness of that judgment and will respond to ASIC’s application through the appropriate legal channels. 

"Block Earner continues to operate business-as-usual and remains fully committed to compliance, innovation and building products that benefit Australian consumers.”

ASIC says the High Court will consider its application on a date to be determined.