Court grants relief from liability to Block Earner - ASIC appeals

A recent penalty decision in Australia highlights the importance of obtaining expert regulatory advice before offering financial products or services, particularly for businesses providing a crypto service.

In February, we wrote about the Federal Court decision in Australian Securities Investment Commission v Web3 Ventures Pty Ltd [2024] FCA 64 which was the first judgment obtained by ASIC against a crypto business –Block Earner.

The Court found that Web3 Ventures (Block Earner) contravened the Corporations Act 2001 (Cth) by carrying on a financial services business without holding an Australian Financial Services Licence, and by operating an unregistered managed investment scheme.

More recently, Justice Jackman handed down his decision on the penalty against Block Earner.

The penalty decision concerned the Court’s ability to relieve a person (wholly or partly) from a liability to which a person would otherwise be subject under section 1317S of the Corporations Act 2001 (Cth) (the Act) and the Court’s similar ability to grant relief (under section 1318 of the Act).

His Honour exercised his discretion not to award a pecuniary penalty against Block Earner, primarily on the basis that Block Earner:

  1. considered, with legal advice, that they did not need an AFSL or to register the scheme;
  2. derived a relatively small amount of profit from the product;
  3. received adverse media coverage as a result of the proceedings through ASIC’s own media releases; and
  4. had shown active participation with industry bodies about cryptocurrency regulation demonstrating a willingness to engage with government and regulatory bodies.

The decision highlights the importance of obtaining expert regulatory advice before offering financial products or services, particularly for businesses providing a crypto service, which operate in an uncertain legal regime.

Key to the Court’s decision not to award a pecuniary penalty was Block Earner’s belief as to the legality of their conduct being developed based on expert legal advice.

The decision is the subject of an appeal by ASIC, who are seeking that Block Earner be required to pay a pecuniary penalty and not be relieved from liability under section 1317S. The appeal has not yet been listed for hearing.

Crypto businesses particularly should engage with legal advice as to the classification of their products and associated regulatory requirements, as well as with legal reform initiatives. One such reform initiative is the proposed ‘Regulating digital asset platforms’ framework, which further consultation is expected for this year.

Our Australian team has experts who can advise at all stages of corporate regulatory compliance. Please reach out anytime to discuss these important issues.

Authors: Jonathon Ellis, Jessica Laverty, and Jeremy Maybloom

 

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