Aussie crypto platform Block Earner allegedly sold unlicensed financial services

The corporate regulator has launched legal action alleging crypto platform Block Earner has been providing financial products without the proper license, exposing customers to risk and leaving them without appropriate protections.

Block Earner, the trading name of Web3 Ventures Pty Ltd, is a digital currency exchange pitched as a way for less crypto-savvy investors to put money into decentralised finance (DeFi) products that provide annual yields. It started offering a number of fixed-yield earning products – called USD Earner, Gold Earner and Crypto Earner – in March.

ASIC has recently been taking action to protect investors from harms posed by crypto-asset offerings.Credit:Getty

However, the company stopped marketing them last week after the Australian Securities and Investments Commission notified Block Earner of its concerns that they were financial products, which require a license.

In Federal Court documents filed on Tuesday, ASIC alleges that by failing to provide investors with the protections that come with a license, “consumers were exposed to risk and made an uninformed (or inadequately informed) or unsuitable investment, and ultimately [were] exposed to loss”.

By April this year, 240 customers were using the Block Earner products and by August, $1.5 million had been deposited into them, according to ASIC.

The regulatory action comes amid carnage in the broader crypto industry, spurred by the collapse of Bahamas-based crypto exchange FTX. In the highest-profile crypto blowup to date, FTX filed for protection in the United States after traders pulled $US6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.

ASIC deputy chair Sarah Court said in the regulator’s view, Block Earner’s products were marketed as an alternative to a traditional financial product.

“We felt it was almost like saying to people, look, this is like a traditional bank account … and you get these high yields of between 4 and 7 per cent. It was, at least at the time, a very low-interest [rate] environment, it had the potential to have a real attraction to people,” she said.

“We’ve taken this action because we want to make it clear and send a message to the market that you can’t evade getting financial services license just because you have the word crypto in the product name.”

She said if the court ruled that they were financial products, it would send a clear message to others operating in the area. Contravening the Corporations Act by operating without a financial license can attract penalties in the millions.

Earlier this year, ASIC said that identifying misconduct involving high-risk products like crypto was one of its enforcement priorities. Last month, it launched legal action against BPS Financial, the Gold Coast company behind crypto asset Qoin, alleging it had engaged in unlicensed conduct and released misleading promotional material. The company has said it will defend the matter.

On Tuesday, a Block Earner spokeswoman said ASIC’s action was “a disappointing outcome”.

“We welcome regulation in our space and have spent considerable resources building regulatory infrastructure to be able to deliver a whole suite of services to Australian users in a regulated and compliant manner under existing guidelines provided by ASIC.”

“Since inception, customers’ funds with Block Earner have been protected against crypto market volatility like the recent FTX downfall and earlier cryptocurrency market crashes, and customers are able to withdraw their funds at any time,” she said.

Block Earner released a statement last week saying it had no exposure of any kind to FTX, its subsidiaries or connected parties, and customer’s assets were secure.

The federal government announced in August that Australia would become the first country to chart the number, type and underlying code of available cryptocurrencies. It will “token map” the Australian crypto asset sector as a first step towards fresh regulation in the area, which the tax office estimates more than one million people have “interacted” with since 2018.

The industry has been calling on the government to introduce legislation to reduce the risk for investors and turn crypto into an established, safer asset class. The former government developed draft reforms last year which regulators and Treasury are assessing and implementing.

Court said ASIC was supporting Treasury in their efforts and have been providing them with information in the market to help the development of the regulatory framework.

“We need regulation that focuses on consumers and investors,” said Court.

“Without wanting to build on any of the hype associated with the collapse of FTX, it is a very stark reminder about what happens when the innovation and creativity takes over and investors and consumers are not put front and centre. These are serious issues involving real people’s money.”

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