Australia: Crypto in the Courts – ASIC v Finder Update

By: Daniel Knight, Ben Kneebush and Thais Fernandes

The Federal Court of Appeal has dismissed ASIC’s appeal and upheld the primary judge’s decision that Finder Wallet’s (Finder) product “Finder Earn” was not a “debenture” and they did not have to hold an Australian Financial Services License (AFSL). ASIC is still considering the implications of this decision and have not yet indicated whether they will seek to appeal to the High Court of Australia.

What happened last time?
As discussed in our previous blog post, the Finder Earn product allowed customers to exchange money in their Finder account for TrueAUD stablecoins and receive fixed returns in TrueAUD upon expiry.

At trial, the court accepted Finder’s case that Finder Earn did not fall within the definition of a “debenture” as there was no “money deposited or loaned” to Finder and consequently there was no “undertaking to repay”.

ASIC’s Appeal
ASIC appealed this decision in April last year, submitting that the Finder Earn product did meet the definition of a “debenture” on two grounds. ASIC argued that Finder Earn did involve a “loan or deposit” on the proper construction of the relevant terms of service or, in the alternative, because all customers’ activities under the Finder account should be considered a single arrangement by which customers lent money. ASIC also asserted that Finder Earn did involve an “undertaking to repay” moneys.

What did the Federal Court of Appeal say?
The Court dismissed ASIC’s first ground for appeal and therefore found it unnecessary to consider the second. The Court found the following:

• Purchasing TrueAUD through the Finder Earn product was only one of the options available to customers. The Court said this eliminated ASIC’s argument that all these activities should be considered a single scheme involving the “deposit of money”. 
• TrueAUD is a species of property and could not be considered “money”. The Court found that the bundle of rights and entitlements conferred on TrueAUD holders differ from the ones arising from “money”.
• The arrangement could not be described as a “money debt”. Customers would exchange intangible property for the right to return its equivalent plus the return.
• The Court did not give weight to the fact that TrueAUD was pegged to AUD at a 1:1 ratio and did not see this as causing the arrangement to be akin to “money”. 
• The Court did not consider that the arrangement involved a transfer of “money”.

Implications

As the industry continues to await ASIC’s release of updated guidance in INFO Sheet 225 (as well as more details about the Government’s proposed legislation for digital asset industry licensing), this judgement provides some certainty for digital asset providers with similar products to Finder Earn.

In relation to stablecoins, the case demonstrates that being pegged to AUD at a 1:1 ratio does not alter its characteristic of property for the purposes of the definition of a debenture, as the rights of a stablecoin holder are the same as those conferred on a property owner.