Fintech Block Earner scores major victory for crypto industry against ASIC

Fintech Block Earner scores major victory for crypto industry against ASIC

Block Earner founders Jordan Momtazi and Charlie Karaboga

Sydney-based fintech Block Earner has scored a major win in its battle against the corporate regulator after the Federal Court relieved the company of any penalties for contraventions found for its crypto-related Earner product.

Block Earner, which was founded by Jordan Momtazi and Charlie Karaboga, also says the decision marks “significant progress for the crypto industry which has faced regulatory uncertainty and active regulatory enforcement action globally”.

The Australian Securities and Investments Commission (ASIC) brought the action against Block Earner in 2022, alleging that it provided unlicenced financial services when offering several Earner products to the public including USD Earner, Gold Earner and Crypto Earner.

While ASIC says the court found the contraventions to be serious, it relieved Block Earner from liability to pay a penalty largely due to findings that it acted honestly and not carelessly when it offered the Earner product. ASIC was also ordered to pay Block Earner’s costs.

Founded in 2021, Block Earner offered customers the Earner products between March and November 2022 whereby they could earn yield on their investments, backed by crypto assets including stablecoin USD coin.

The actions brought by ASIC also related to Block Earner’s Access product which the court dismissed from the proceedings.

“From the beginning, it was never our intention to break or circumvent the rules,” says Karaboga, the Block Earner CEO.

“As a startup, we did everything within our power to comply, including obtaining legal advice and creating a comprehensive risk framework.

“While we are obviously disappointed about the findings of contravention in relation to the Earner product, we are pleased that the judge recognised our honest efforts and relieved Block Earner from liability for the penalty.”

Regardless of the penalty relief, ASIC’s action has cost Block Earner about $300,000 in legal fees, as well as “significant reputational harm and the loss of key partnerships”.

Block Earner has also hit out at a media release issued by ASIC after the Federal Court handed down its liability judgment.

“His honour found that the media release, which has now been withdrawn, had a tendency to lead readers into error (albeit that was unintentional on ASIC’s part) because it indirectly suggested Block Earner needed an AFSL for its existing products (which was not the case as Earner had been withdrawn),” says Block Earner.

The Federal Court handed down its ruling in February this year, finding that Block Earner had contravened the Corporations Act by offering Earner without an Australian Financial Services Licence and appropriate ASIC registration.

However, the court was satisfied that Block Earner had acted honestly and that it consistently sought to conduct its business lawfully by seeking legal advice on its products.

The Earner product was abandoned by Block Earner in November 2022 and all customers were repaid including interest owed.

ASIC had brought the matter before the Federal Court as a test case for the crypto industry and to determine how financial services law applies to crypto-related products.

Block Earner, the trading name of holding company Web3 Ventures which is an AUSTRAC-registered digital currency exchange, says the case recognised the company’s broader mission to engage in policy discussions with the government and regulatory bodies to find effective ways to regulate crypto-related products and services.

“Block Earner remains committed to fostering innovation and providing clarity to its customers,” says the company.

“The company believes that these proceedings will help give further regulatory clarity to other startups, helping them to navigate the regulatory landscape with greater confidence, and continue to innovate for the benefit of Australian consumers, and within the framework of the relevant laws and regulations.”

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