Australian court rules in favor of crypto lender, dismissing ASIC’s appeal

The Australian Full Federal Court dismissed an appeal from the Australian Securities and Investments Commission (ASIC), which failed in its attempt to punish Block Earner for its previously offered “Earner” product, marking one of the biggest pro-crypto wins in recent times.

ASIC argued that the features of the Earner product made it a financial product under Australian law that required a license. However, the Court found the product could not meet the legal definitions required to deem it as such.

ASIC said in a brief public note it is “considering this decision.” The regulator has yet to venture the matter by the High Court.

The ruling is a setback for ASIC, which has ramped up its oversight of cryptocurrency products and platforms in Australia.

Court declares Block Earner offered loans, not investments

ASIC commenced proceedings against Block Earner on the first of November 2022 — the start of the legal saga.

Central to the case was whether the Earner product operated as a conventional investment scheme — which would need to be tightly regulated — or whether it was just a loan agreement between Block Earner and its customers.

The Court reasoned that the product was structured as a plain loan. Customers signed agreements to lend their crypto assets to Block Earner for a fixed return.

Crucially, there was no pooling of customer assets. The agreement for each customer was separate. Customers also had no interest in Block Earner’s broader business operations or performance aside from earning the agreed interest.

The court also held that the structure was not a managed investment scheme.

The ruling stated that the product details were clear and that the customers’ rights were fixed and contractual, not dependent on the performance of a pooled investment. This distinction was central to exonerating Block Earner of any wrongdoing.

Block Earner celebrates court ruling but rules out reviving product

In response to the win, the leadership at Block Earner celebrated the decision as a win for innovation and regulatory clarity.

Block Earner’s chief executive and co-founder, Charlie Karaboga, said, “From the outset, we sought to ensure that our modern product suite could fit into a less-modern regulatory environment.”

Block Earner’s chief commercial officer, James Coombes, agreed that clearer treatment of crypto assets would allow companies to build new financial products responsibly.

Coombes said that the more crypto assets were treated like existing asset classes, the easier it would be for businesses to innovate.

Even though the ruling was in its favor, Block Earner said it has no intention of bringing the Earner product back to market.

A spokesman for Block Earner said they were focused on the future and that the ruling freed them to continue building compliant, innovative solutions for Australians seeking safe and secure access to digital finance.

The case has wider implications for Australia’s burgeoning crypto economy. According to Block Earner, an estimated four million Australians have been exposed to cryptocurrencies, whether directly or via investment platforms.

Legal experts say the ruling could shape how other crypto companies structure and promote products to comply with Australia’s financial regulations.

It also indicates that courts might take a more nuanced approach when looking at traditional finance laws used for blockchain-real services until new, digital asset-oriented regulations come on stream.

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