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The corporate watchdog's blitz against against crypto companies rages on after the Australian Securities and Investments Commission (ASIC) launched civil penalty proceedings against Finder Wallet, a subsidiary of comparison website Finder.com which was founded by Fred Schebesta, Frank Restuccia and Jeremy Cabral.
ASIC alleges Finder Wallet provided unlicensed financial services, breached product disclosure requirements, and failed to comply with design and distribution obligations (DDO) in relation to its crypto-asset related product Finder Earn.
The action in the Federal Court follows the regulator's recent moves against other companies in the crypto space such as Block Earner and BPS Financial, a group affiliated with the crypto-asset token Qoin.
"This is ASIC’s third recent action against a firm offering a crypto-asset related product that we consider to be a financial product," says ASIC Deputy Chair Sarah Court.
"Our message to industry is clear - just because an offer involves a crypto-asset related product does not guarantee it will fall outside the current regulatory regime."
Between late February and 10 November 2022, Finder Earn customers deposited Australian dollars into their accounts, which were then converted to an Australian dollar-denominated ‘stablecoin’ called TAUD and allocated to Finder Wallet to use for its own working capital.
Finder Wallet paid customers - in Australian dollars - an annual compounding return of either 4.01 per cent or, in some circumstances, 6.01 per cent, in exchange for the use of their funds by Finder Wallet.
ASIC alleges that the Finder Earn product was, in substance, a debenture. This is because customers deposited money with Finder Wallet on the understanding that their money would ultimately be repaid, together with a return for allowing Finder Wallet to use their capital.
In response, a spokesperson for Finder has taken issue with ASIC's definition of the Finder Earn product - an offering that was withdrawn on 24 November after the watchdog raised its concerns.
"We do not share ASIC’s view that Finder Earn can be regarded as a debenture. Since Finder Earn was launched in November 2021, we have proactively engaged with ASIC and have cooperated fully with all ASIC requests for information," the Finder spokesperson said.
"An innovative product, Finder Earn offered customers a way to earn yield on their crypto.
"All customers’ capital was returned in full and the product was sunset last month."
ASIC also alleges that Finder Wallet required an Australian financial services licence to offer Finder Earn, because it was providing financial product advice or dealing in a financial product.
The regulator alleges that offering Finder Earn without a licence exposed consumers to potential harm, including the possibility that they were offered a product that was not suitable for them.
ASIC Deputy Chair Sarah Court said that because Finder Earn 'appeared to be a financial product', Finder Wallet had a requirement to comply with disclosure and DDO obligations to protect consumers.
"Issuers of financial products such as debentures must issue appropriate risk disclosure documents and develop appropriate target market determinations to ensure that consumers are not sold inappropriate products," she said.
"We allege that Finder Wallet failed to do this, potentially putting their customers at risk of harm."
ASIC is seeking declarations and pecuniary penalties from the Court.
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