ASIC sues Block Earner

Sydney-based Block Earner has been hit with civil penalty proceedings originated by the Australian Securities and Investment Commission (ASIC) which alleges the fintech provided unlicensed financial services.

According to ASIC, Block Earner’s crypto-asset based products USD Earner, Gold Earner and Crypto Earner should have been licensed, with the watchdog claiming they were managed investment schemes.

ASIC claims that because the three products were facilities through which customers made financial investments that Block Earner should have obtained the appropriate Australian Financial Services licences.

“We are concerned that Block Earner offered financial products without appropriate registration or 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,” ASIC deputy chair Sarah Court said.

“ASIC is aware that many consumers are interested in purchasing or investing in crypto-assets. Crypto-assets are risky, inherently volatile and complex and ASIC remains concerned that potential investors in crypto-assets may not fully appreciate the risks involved. 

“ASIC supports the development of an effective regulatory framework covering crypto-assets to protect consumers and investors.”

In a statement sent to Business News Australia, Block Earner co-founder and CEO Charlie Karaboga said ASIC’s move to take action against the company was “disappointing”.

“Although we understand the backdrop, this is a disappointing outcome. We welcome regulation in our space and have spent considerable resources building regulatory infrastructure to be able to deliver a whole suite of services to Australian users in a regulated and compliant manner under existing guidelines provided by ASIC,” Karaboga said.

“Since inception, customers’ funds with Block Earner have been protected against crypto market volatility like the recent FTX downfall and earlier cryptocurrency market crashes, and customers are able to withdraw their funds at any time. 

“Needless to say, lack of clarity around regulation in Australia for cryptocurrency-related products creates friction between regulators and innovators like Block Earner in our industry. In an ideal world, we would build these products in a regulatory sandbox with more clarity around licensing regimes. In the future, we look forward to working with ASIC and other regulators in this space to make Australia an innovative space for the crypto industry.”

Founded just last year by entrepreneurs Charlie Karaboga and Jordan Momtazi, Block Earner offers customers products whereby they can earn yield on their investments, backed by cryptoassets including stablecoin USD coin.

Essentially, the founders aims are to disrupt existing pillars of finance by attaching them to blockchain-based solutions. This promise has attracted a number of heavy-hitters in the crypto space, with the company closing a $6.4 million seed funding round led by Framework Ventures in December 2021.

Other backers of the seed round were crypto exchange Coinbase, Synthetix founder Kain Warwick, DeFi Alliance, the developer of the Avalanche blockchain protocol Emin Gün Sirer, and AAVE founder Stani Kulechov.

In October, Block Earner launched a blockchain-based corporate treasury product for Australian businesses, opening up new opportunities for companies looking to access blockchain finance for their corporate accounts.

The treasury management product, which is not the subject of ASIC’s civil penalty proceedings, aims to shake up the idea of traditional corporate treasury management and offers businesses a fixed annual yield of 7 per cent on USD digital assets (USD Coin), and a fixed annual yield of 4 per cent on digital assets that track the price of gold.

Karaboga said the company was looking forward to working with ASIC on ways to bridge the regulatory gaps between traditional finance and blockchain-based counterparts.

“As a business that has built its model around the highest-quality digital asset classes, Block Earner is continually looking for ways to make the industry safer and more beneficial for investors,” Karaboga said.

“We will continue to operate in the space and build innovative products to bridge the gap between traditional finance and blockchain-based finance under new guidance from ASIC. 

“As a case in point, for our upcoming products where the licensing requirements are clear, we have already filed for an application for an Australian Credit License and advised ASIC of our intention to apply for an AFSL.”