The corporate regulator has suffered a costly legal loss after a judge ruled comparison website Finder did not offer an unlicensed financial service via its crypto exchange.
Finder successfully defended a lawsuit brought by the Australian Securities and Investments Commission seeking penalties over its Finder Earn product.
The corporate watchdog alleged subsidiary Finder Wallet provided financial services without the proper licence.
Because customers transferring money to Finder Wallet to buy cryptocurrency TrueAUD later received a “deposit” when getting their funds back, this meant the Finder Earn product was a debenture, ASIC argued.
A debenture is a financial product based on a debt that a company promises to pay back plus interest.
It cannot be offered without a proper financial services licence.
Finder Wallet defended the case in the Federal Court, arguing that ASIC had misunderstood how its product worked.
The firm said it never promised to repay debts to customers through a deposit.
Instead, it said customers purchased TrueAUD and the legal title to the cryptocurrency was then transferred to Finder Wallet.
The customer then had a right to get back the amount of TrueAUD they had bought plus an additional amount at the end of a stated earnings period, the company said.
On Thursday, Justice Brigitte Markovic agreed with the firm, dismissing the lawsuit and ordering ASIC to pay Finder Wallet’s legal costs.
“It is not a deposit with or loan of moneys to Finder Wallet but, as specified in the terms, the transfer or loan of the TrueAUD, an asset, the legal title to which is held by Finder Wallet for the duration of the earn term,” the judge wrote.
There was no legally binding promise by the firm to repay a “debt” to those who purchased the TrueAUD currency, Justice Markovic said.
“Rather, there was a contractual promise to return to the customer the TrueAUD allocated … together with the return earned on that allocation over the earn term, which was also paid in TrueAUD.”
Finder’s global CEO Frank Restuccia welcomed the decision.
“We are delighted with this outcome, which confirms that Finder was compliant with our regulatory obligations in offering Finder Earn to our customers,” Mr Restuccia said.
“We understand and respect the importance of good regulation to protect consumers and we engaged openly and proactively with ASIC from the outset.”
In a statement, ASIC said it would carefully consider the judgment noting it had 28 days to lodge an appeal if it wished.
“ASIC pursued this matter because we considered that this product was being offered without the appropriate licence or authorisation and therefore without the benefit of important consumer protections,” ASIC executive director of enforcement and compliance Tim Mullaly said.
The Finder Earn product was discontinued in November 2022 with the company saying it had returned all customer capital plus an additional combined yield worth around $500,000.