Finder Wallet wins landmark case against ASIC, proving its crypto investment product legal

In a landmark decision, the Federal Court of Australia has dismissed the Australian Securities and Investments Commission’s (ASIC) case against Finder Wallet and its former cryptocurrency Earn product.

The Court found Finder Earn, a cryptocurrency investment product offered by Finder Wallet, was compliant with Australian financial services law, marking a significant moment in the intersection of cryptocurrency and regulatory compliance in the country.

This news comes just weeks after Finder laid off 17% of its global workforce in its latest round of redundancies.

The legal dispute originated from ASIC’s allegations that Finder Wallet had offered its now-defunct Earn product without holding an Australian Financial Services Licence (AFSL), thereby breaching financial services laws.

This case arose in the context of ASIC’s broader scrutiny of the fintech sector, especially services related to cryptocurrencies, following several high-profile cases of regulatory non-compliance within the industry.

Justice Markovic’s ruling on Thursday focused on whether the Finder Earn product could be classified as a debenture under Australian law. This made it a first-of-its-kind case in Australia, testing whether crypto-assets lent to a corporate entity would qualify as debenture.

The judgment concluded that Earn operated within the legal boundaries, setting a precedent for how similar cryptocurrency-based financial products might be assessed in terms of regulatory compliance in the future.

“Just as in my opinion there were no moneys deposited or lent, there was equally no undertaking by Finder Wallet to repay any moneys as a debt. Rather, there was a contractual promise to return to the customer the TrueAUD allocated by the customer to Finder Wallet together with the Return earned on that allocation over the Earn Term, which was also paid in TrueAUD. The customer made an investment in the Finder Earn product by allocating the customer’s TrueAUD to Finder Earn in exchange for the Return,” Justice Markovic said in her findings.

“While Finder Wallet used the terminology of ‘loans’ and ‘lending’ in describing the Finder Earn product, for example in its FAQs and on the Finder Website, the contractual obligation to repay the TrueAUD allocated to Finder Wallet by a customer and the Return earned on that allocation (or investment) is “different from that which is contemplated by the usual fundraising activities traditionally associated with the issue of debentures”.

“It follows from the above that ASIC has not established that the Finder Earn product is a debenture within the meaning of a s 9 of the Corporations Act. As each of the contraventions of the Corporations Act alleged by ASIC is predicated on establishing that the Finder Earn product is a debenture, those contraventions cannot be made out.”

Frank Restuccia, global CEO and co-founder of Finder, responded to the judgment by reaffirming the company’s commitment to regulatory compliance and customer protection.

“We are proud to have developed Finder Earn as a way for Australians to earn yield on their cryptocurrency investments in what was an ultra-low interest rate environment,” Restuccia said.

“We are delighted with this outcome, which confirms that Finder was compliant with our regulatory obligations in offering Finder Earn to our customers. We understand and respect the importance of good regulation to protect consumers and we engaged openly and proactively with ASIC from the outset.”

Fred Schebesta, the company’s executive chair and co-founder, highlighted the need for a collaborative approach between regulators and innovators in the fintech space.

“Innovation always moves faster than regulation, and this case is a great example,” Schebesta said.

“It highlights the need for more open communication between innovators and regulators, to navigate emerging sectors by ensuring a collaborative approach to both progress and compliance.”

The proceedings against Finder Wallet were part of ASIC’s ongoing efforts to enforce regulatory compliance within the cryptocurrency sector.

This includes actions against other fintech companies, such as Block Earner, which was found by the Federal Court to have engaged in unlicensed financial services conduct by offering its crypto-backed Earner product without an AFSL. Australia crypto exchange Swyftx also quietly shut down its own Earn product in the wake of the Block Earner and Finder legal action during the Christmas long weekend in 2022.

Block Earner’s product offered fixed yield returns on various crypto-assets and was determined to require compliance with financial services licensing requirements.

“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 Enforcement and Compliance Tim Mullaly said.

According ASIC, it will consider the judgement carefully. It has 28 days to lodge any application for appeal.

Disclosure: The author is a former employee of Finder.