Block Earner wins Federal Court appeal against ASIC in key crypto ruling

The Federal Court of Australia has ruled in favour of digital asset platform Block Earner, overturning prior findings that its discontinued crypto lending product, Earner, constituted a managed investment scheme or financial investment facility under the Corporations Act 2001.

In a judgment handed down by Justices O'Callaghan, Abraham and Button, the Full Court dismissed the Australian Securities and Investments Commission's (ASIC) appeal and allowed Block Earner's cross-appeal.

The Court set aside all declarations of contravention made by the primary judge and ordered ASIC to cover Block Earner's legal costs.

The ruling brings an end to a closely watched legal case that has raised broader questions about the regulation of blockchain-based financial services in Australia.

The Court found that the Earner product, which allowed customers to loan cryptocurrency for a fixed interest return, did not fall within the legal definitions of a financial product, managed investment scheme, or financial investment facility.

"We are pleased with the Court's decision, which vindicates our position and confirms that we acted honestly and in good faith," said Charlie Karaboga, CEO and Co-Founder of Block Earner.

"From the outset, we sought to ensure that our modern product suite could fit into a less-modern regulatory environment.

The Court initially found no penalty was warranted, yet ASIC sought to appeal that decision, placing further stress on our company."

The judgment reinforces that the company's customers were lenders, not investors, in legal terms, and were not entitled to any returns beyond those contractually fixed.

According to the ruling, the Court found that Block Earner's product structure did not involve pooled contributions with the purpose of generating financial benefits for members, which is a key requirement for a managed investment scheme. Furthermore, the customers' returns were not affected by Block Earner's performance or activities, and the contract terms clearly stated that customers did not have any rights or entitlements beyond the fixed interest agreed upon.

"This case highlights the importance of ensuring regulations evolve alongside technology," said James Coombes, Co-Founder and Chief Commercial Officer at Block Earner.

"Without modernised guidance, Australia risks losing fintech innovation to offshore markets more supportive of responsible crypto entrepreneurship."

Block Earner voluntarily ceased offering the Earner product in November 2022 and stated that it has no plans to reintroduce it, despite the favourable ruling.

The product allowed users to convert Australian dollars into stablecoins or gold-backed digital tokens and lend them to Block Earner in exchange for a fixed annualised yield. The Court found that this arrangement constituted a loan agreement and not a financial investment or derivative.

The decision also rejected ASIC's alternative argument that the Earner product should be treated as a derivative under the Corporations Act.

The Court concluded that while customers could choose to have their cryptocurrency converted back into Australian dollars at the end of the term, this was not an essential or defining feature of the arrangement and did not turn the product into a derivative.

In its conclusion, the Court ruled:

• The ASIC appeal be dismissed.
• The Block Earner cross-appeal be allowed.
• The declarations of contravention made by the primary judge be set aside.
• The proceeding be dismissed.
• ASIC pay Block Earner's costs of the appeal, cross-appeal, and trial proceedings.

"Over 4 million Australians have exposure to cryptocurrency. As a nation of early tech adopters, we deserve frameworks that are both protective and enabling," added Coombes. "Block Earner remains committed to building trusted, transparent, and compliant financial products for everyday Australians."

Block Earner is registered with AUSTRAC and has adjusted its offerings since discontinuing the Earner product in 2022. The company says it continues to engage with regulators and policymakers as it develops blockchain-based financial solutions aligned with current regulatory expectations.