The Australian Securities and Investments Commission (ASIC) has announced that they will appeal the Federal Court’s decision dismissing ASIC’s allegations that Finder Wallet’s Earn product was a debenture.
This crypto-asset Earn product allowed users to transfer cash, purchase True AUD stablecoins and be paid a fixed return for giving Finder the use of the stablecoins. Customers were paid in AUD on a compounding return of either 4.01% or in some cases 6.01% with a nifty little second by second counter showing the interest clocking up.
ASIC had alleged that by providing the Earn product, Finder Wallet provided unlicensed financial services, breached product disclosure requirements and failed to comply with design and distribution obligations.
ASIC’s allegation centred around the Earn product being a debenture under Section 9 of the Corporations Act 2001 (Cth) (the Corporations Act) – with which the Federal Court disagreed. A debenture is defined as follows under the Corporations Act:
debenture of a body means a chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to the body. The chose in action may (but need not) include a security interest over property of the body to secure repayment of the money.
The Federal Court dismissed ASIC’s claims on 14 March 2024 and ordered ASIC to pay costs.
Now ASIC has appealed this decision. It said it is doing so because
it is concerned that the Finder Earn product was offered without the appropriate licence or authorisation and therefore without the benefit of important consumer protections.
ASIC has pursued its case on the basis that the Finder Earn product on the narrow basis that the product was a form of debenture. In a similar recent case involving Block Earner, ASIC alleged that two yield bearing products also involving cryptocurrency related offerings were in the form of a managed investment scheme, financial investment or derivative. The primary judge in this case was not required to address these matters based on ASIC’s pleaded case.
It appears from ASIC’s Notice of Appeal that it is basically re-running the same arguments, claiming that the primary judge “erred in” in applying the law, and his categorization of the Earn product terms.
ASIC’s appeal is not a huge surprise, as the decision and adverse costs order was a significant set back for ASIC, which has recently indicated its intention to test its regulatory perimeter in relation to cryptocurrency related offerings. It also follows a partial win in the Block Earner case, in which ASIC failed to establish that Block Earner’s access product was a financial product.
The appeal will be heard by the Full Federal Court on a date to be determined. It has been reported that Finder is “disappointed” with ASIC’s decision not to accept the Federal Court ruling, but is prepared to diligently defend its product in the Full Federal Court.
Written by Jake Huang, Steven Pettigrove and Michael Bacina
Australia scores early success in the war on scams
The recent quarterly update from the National Anti-Scam Centre published 12 March 2024, revealed an optimistic decline of 43% in the overall scam losses in the year 2023 December quarter. In particular, losses by cryptocurrency saw the sharpest decline by 74%. This is likely to be further reduced in the coming years, with the report detailing plans for
cryptocurrency scam data to be collected commencing in early 2024, to begin the necessary work to begin making scam data available to the Digital Currency Exchange sector.
In the report, Catriona Lowe, the Deputy Chair of the Australian Competition and Consumer Commission (ACCC) reflected the National Anti-Scam Centre’s commitment to:
Advocating for mandatory and enforceable industry codes for banks, telecommunications providers, digital platforms, and cryptocurrency exchanges.
The Australian Banking Association (ABA) welcomed the new report, with the CEO Anna Bligh stating:
It is encouraging that efforts to protect people are making a difference
However, Bligh warned that the fight against scams requires collective effort:
we must all continue to remain vigilant…banks, government, telcos, social media platforms as well as consumers continue to work together to stay one step ahead of scammers.
In particular, she noted:
Scammers often use crypto exchanges as the getaway vehicle of choice to siphon funds. Banks are now regularly blocking or limiting suspect transfers to high-risk crypto exchanges.
The new Scam-Safe Accord imposes a high standard of consumer protection on banks and will see a $100M investment in a new payee system. This is designed to reduce scams by allowing consumers to verify the payee prior to transferring money. Other initiatives under this Accord include:
introducing more warnings and payment delays for consumer protection;
adopting technology and controls to prevent identity fraud, such as the use of at least one biometric check for new customers;
Expanding intelligence sharing across the banking sector; and
Requiring all banks to implement an anti-scams strategy to enhance oversight of the bank’s scams detection and response mechanisms
While the battle against scams continues, the early signs of success in the latest report highlight that Australia’s anti-scam strategies are headed in the right direction. With combined efforts from institutions, regulators and consumers, it is optimistic that more Australians will be safeguarded from scams. As Lowe commented:
There is much more to be done, however we are making a difference.
Written by Kelly Kim and Steven Pettigrove
