A cryptocurrency exchange that was found to have offered a financial product and operated a managed investment scheme without holding an Australian Financial Services Licence will not have to pay any penalty, the Federal Court has ruled.

In February, Justice Ian Jackman had found that Web3 Ventures Pty Ltd, the operator of cryptocurrency exchange Block Earner, was in fact offering a financial product and needed to do so under an AFSL.

Justice Jackman yesterday held that Web3 Ventures had “acted honestly."

“The unchallenged evidence of Charlie Karaboga [one of the founders] is that at the time Block Earner was launched, he considered whether an AFSL was required to provide that product” Jackman wrote in the judgement.

Charlie Karaboga is a serial entrepreneur with a background in the telco sector and, judging from his LinkedIn profile, lacked experience in financial services before catching the crypto bug. One of his first ventures was Pet Sleepover.

“[Karaboga] formed the view that it was not a regulated financial product and that an AFSL was not required” Jackman said.

While Justice Jackman has found the opposite was the case, in his judgement – in a penalty case – Jackman elected to lean heavily on the philosophy of laws rather than lean in the direction of sanctioning a rogue operator.

By April 2022, ASIC, as part of a wider and assertive project to target crypto operators, had challenged Web3 Ventures over its approach, and advice, analysing its need for an AFSL.

Web3’s lawyers, Gilbert & Tobin, advised ASIC that they had advised the company, and on this simple fact turns Justice Jackman’s decision to let them off the hook.

In short, Web3 Ventures sought legal advice from the country’s top financial services law firm and then considered this advice in light of its own risk appetite statement.

Despite the court having found Block Earner’s contraventions to be serious, “I do not think that granting relief from liability is likely to send the wrong signal to other industry participants” Justice Jackman concluded.

ASIC said yesterday: “ASIC took this case because it was concerned that Block Earner offered the Earner product without an Australian financial services licence, leaving consumers without important protections.". 

“Simply because a product hinges on a crypto asset, does not mean it falls outside financial services law.”