Web3 Ventures, the operator of cryptocurrency exchange Block Earner, evaded a penalty of around $350,000 for offering its “Earner” product without an Australian Financial Services Licence (AFSL).

Federal Court’s Justice Ian Jackman determined that Block Earner should not only be relieved of the liability to pay a pecuniary penalty but also not be charged any penalty at all because it consulted Gilbert + Tobin and believed it was acting honestly.

“In the present case, in my view, the widely publicised declarations of contravention are more than adequate for general deterrence and the protection of the public from similar conduct by others.

“I do not think relieving Block Earner from liability for a penalty in the particular circumstances of this case will encourage others to engage in complacent, careless or imprudent conduct in relation to the need to comply with the [Corporations Act],” Justice Jackman said.

In the eight months it was on the market in 2022, 492 members of the public provided approximately $3.1 million to Block Earner.

However, Block Earner said “no loss or damage” was suffered by investors because all cryptocurrency was returned to users.

It was accepted by both Justice Jackman and the Australian Securities and Investments Commission (ASIC) the investors were exposed to a risk of loss by Block Earner not meeting the requirement of $10 million in net tangible assets “in order to be a responsible entity of a managed investment scheme”.

Co-founder Charlie Karaboga told the court he considered whether an AFSL was required but formed the view Earner was not a regulated financial product and could be offered without the licence.

VIEW ALL

Justice Jackman concluded Block Earner acted honestly because it was not “guilty of carelessness or imprudence of such a degree as to demonstrate that no genuine attempt at all had been made to carry out the requirements of the act or the general law”.

The company received advice about the product from Gilbert + Tobin before the launch and “sought at all times to comply with the law”.

It submitted that contraventions of the Corporations Act were a result of the “misapplication of the technical definitions of managed investment scheme and financial products in the act”.

ASIC submitted the issues involved in the contravention “were complex and technical legal questions”.

While this was accepted, Justice Jackman said it was clear Block Earner “obtained legal advice from a leading law firm before launching the Earner product and genuinely concluded that there was no identified risk in implementing the Earner product”.

ASIC submitted the appropriate penalty should have been in the amount of $350,000.

Block Earner said no penalty should be awarded but proposed the alternative sum of $60,000, which would have been three times the benefit Block Earner received from the Earner product.

“In my view, it is appropriate that no penalty be awarded, consistently with my conclusion that Block Earner should be relieved from liability.

“Even if I had not granted that relief, I would not have awarded any penalty,” Justice Jackman said.

Lawyers Weekly will host its inaugural Partner Summit on Thursday, 20 June 2024, at The Star, Sydney, at which speakers will address the range of opportunities and challenges for partners and partner equivalents, provide tips on how they can better approach their practice and team management, and propel their businesses towards success. Click here to book your tickets – don’t miss out! For more information, including agenda and speakers, click here.

Naomi Neilson

Naomi Neilson is a senior journalist with a focus on court reporting for Lawyers Weekly. 

You can email Naomi at: This email address is being protected from spambots. You need JavaScript enabled to view it.