ASIC appeals judge's call to not penalise Block Earner

ASIC is appealing the Federal Court's recent decision to not issue a penalty to Block Earner after it was found to have provided unlicensed financial services.

In November 2022, ASIC commenced civil penalty proceedings against Block Earner, which offered a range of fixed-yield earning products based on crypto-assets, alleging Block Earner was running an unregistered managed investment scheme.

In February this year, the Federal Court agreed Block Earner had operated a managed investment scheme without a licence. However, at sentencing in June, Judge Jackman relieved the company of any liability to pay a fine.

Judge Jackman said the company acted honestly and not carelessly in offering the product, and that Block Earner was not "careless or imprudent, let alone 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." His reasons for this were that, among other things, Block Earner sought legal advice.

The judge said that even if he hadn't granted the relief, he would not have awarded any penalty, citing Block Earner's "constrained financial circumstances" and concerns it would be oppressive rather than deterrent.

However, ASIC today confirmed it has filed an appeal, saying the judge erred in relieving the company from liability.

ASIC said the judge erred when "inferring that Block Earner relied on legal advice in forming a view that there was no identified risk that the Earner product would breach any laws or regulations when it did not lead evidence to that effect... and drawing inferences favourable to the respondent as to the scope, effect and limitations of the legal advice without tender by the respondent of that advice."

ASIC also said the judge erred given Block Earner profited from the contraventions it was found guilty of, and in holding that the regulatory complexity was a consideration even where the respondent perceived regulatory uncertainty but deliberately engaged in the conduct in pursuit of profits. ASIC also questioned the judge's reliance on a Block Earner press release as grounds for relief despite no evidence "anyone formed an erroneous belief based on that press release."

Further, ASIC also highlighted the judge's comments about how he would not have issued a penalty even without the relief as grounds for appeal, saying "to impose no penalty failed to give effect to the purposes of specific and general deterrence" and "the evidence did not establish that any penalty would have been oppressive."

ASIC is seeking a penalty of $350,000 or other amount seen fit by the court and for Block Earner to pay its costs incurred since 9 February 2024 and its costs of appeal.