A Full Federal Court decision in favour of Block Earner should give the crypto sector greater confidence in testing the regulatory boundaries with product innovation – for now.
Need to know:
- In April, the Full Federal Court ruled that Block Earner’s ‘Earner’ product was not a managed investment scheme, a facility for making a financial investment or derivative.
- The decision highlights the need to be very clear about the exact nature of the product or service before launch.
- ASIC has sought special leave to appeal the Court’s judgment on public policy grounds.
ASIC’s case against Block Earner
In 2022, the regulator, ASIC, took legal action against Web3 Ventures Pty Ltd trading as Block Earner (Block Earner) for operating a financial services business by providing its “Access” and “Earner” crypto products without an Australian Financial Services Licence (AFSL): in breach of the Corporations Act 2001 (Cth) (Corporations Act).
ASIC argued that Block Earner’s “Earner” and “Access” products constituted:
- a managed investment scheme (MIS);
- a facility for making a financial investment (Investment Facility); or alternatively
- a derivative.
In 2024, Justice Jackman (the primary judge) ruled that:1
- The “Earner” product was an MIS and an Investment Facility, but not a derivative; and
- The “Access” product was neither an MIS, Investment Facility, nor a derivative.
We covered this decision in our previous blog.
ASIC’s appeal and Block Earner’s cross-appeal
The primary judge in Australian Securities and Investments Commission v Web3 Ventures Pty Ltd (Penalty) [2024] FCA 578 did not impose a penalty on Block Earner for providing unauthorised financial services – , noting their honest conduct and reliance on legal advice.
ASIC appealed the penalty judgment, arguing that the primary judge erred in the exercise of his discretion not to penalise Block Earner, which should pay a penalty as high as $350,000.
Block Earner cross-appealed against the finding that the Earner product constituted a financial product, because it was neither a MIS nor an Investment Facility by.
The Full Federal Court’s decision
On 22 April 2025, the Full Federal Court of Australia (Court) delivered its much-anticipated decision on the appeal.2 We examine the findings below.
Definitions
Before we dive into the appeal judgment, let’s unpack the meaning of an MIS, Investment Facility and Derivative.
| Product | Meaning |
| MIS | An MIS is a scheme with the following three features:
|
| Investment Facility | A person makes a financial investment if:
|
| Derivative | A derivative is an arrangement that meets the following conditions:
There are exemptions to this definition, including contracts for the provision of future services and the credit facility exemptions. |
Why ‘Earner’ was found not to be a Managed Investment Scheme
Block Earner accepted that the Earner product was a ‘scheme’ – but argued that it did not meet the first two features of an MIS.
First feature
The primary judge found that the Earner product met the first feature of an MIS. This was based on representations made in one FAQ response on the website that suggested Block Earner pooled customer funds to generate returns. This was despite the fact that:
- this was inconsistent with the legal terms for the Earner product;
- this was never Block Earner’s intention; and
- Block Earner claimed these representations were made in error.
In the Appeal, the Court disagreed with the primary judge’s reasoning and conclusion on the basis that:
- the Block Earner legal terms, specifically the ‘Lend Terms’ (not the FAQ), defined the relevant legal relationship between Block Earner and its customers;
- the FAQ did not, properly construed, represent that interest would be paid from, or that customers had a right to participate in, the benefits of Block Earner’s own lending activities. This was because the FAQ did not represent that there was a link between the return on customers’ loans and the performance of Block Earner’s lending activities, nor did it describe a right vested in customers to the benefits of Block Earner’s own lending activities;
- the fact that Block Earner represented (in the FAQ) that “it would be able to pay” because of the benefit produced by the scheme is a very different thing from the statutory concept of a customer acquiring benefits produced by a scheme.
Most telling from the Court’s judgment was the finding that a representation from a borrower that it is able to pay a lender what it promises to pay because of the benefit produced by a ‘scheme’ invariably describes the features of an ordinary loan. That is, the Earner product was not different to a traditional loan. This is an important point and also aligns with the Court’s points that:
- a borrower (in this case Block Earner) typically borrows funds for their own purposes to generate a benefit for themselves; and
- any interest rate paid by a borrower for loaned funds represents the price paid to use funds, not benefits produced by any pooling of contributions.
Second feature
The primary judge found the Earner product met the second feature of an MIS again based on the FAQ’s reference to “pooling” customer funds. However, the Full Federal Court found that this interpretation was incorrect for the following reasons:
- The Loan Terms were unambiguous, and customers were told that in participating in the Earner product, they do not intend for Block Earner to generate a financial benefit or for this to product to be an investment;
- The Loan Terms were inconsistent with the reference to “pooling” in the FAQ, and the primary judge’s view as to how to read the Loan Terms to reconcile that inconsistency was flawed;
- While the Court acknowledged that that FAQ used the word “pooling”, which was perhaps unfortunate, it did not change the objective intention on the part of either party per the Loan Terms of the intended use of the loaned funds. It also did not amount to a representation that such pooling was for the purpose of producing financial benefits for the members in circumstances where they have acquired rights to those benefits given the way in the Loan Terms operated; and,
- The Loan Terms were clear and unambiguous and there was no cause to consider any facts or representations outside of the Loan Terms, unlike in other cases where representations were made to customers that they relied upon (which were inconsistent with the agreement or terms.
On the basis of the above, the Court held that nether the first or second feature was met, and accordingly Earner was not an MIS.
Why was it not an Investment Facility?
The Court respectfully disagreed with the primary judge’s finding that the first element of an Investment Facility was met on the basis that:
- The primary judged erred in finding that Block Earner used the money or money’s worth given to it by investors to generate a financial return or other benefit for the investors. This is because Block Earner used the money or money’s worth given to it by investors to generate a return and benefits for itself only. To consider otherwise would conflate the generation of a return to meet Block Earner’s obligations to investors with an obligation to generate a return for investors;
- For the second and third limb of the first element, ASIC argued that the intention was an objective, not a subjective, one. The Court thought this was improbable and was inconsistent with the primary judge’s findings and did not comment further on this argument;
- In relation to the third limb, the Court held that this was also not met as Block Earner did not intend to generate a return for investors based on the legal terms and operation of the Earner product, especially in light of Block Earner’s evidence;
- ASIC did not adduce any evidence as to the intention of any investor that was inconsistent with the legal terms to establish the necessary intent for the second limb. On this basis, the Court held that the primary judge was wrong to conclude as a matter of fact something that is wholly at odds with the evidence and primary judge’s view about the likelihood as to what a “substantial proportion” of customers would have understood;
- The Court also saw no reason to assume (as the primary judge did) that users would not have read the legal terms, but instead read the FAQ, as the legal terms weren’t long or overly complex and also included key information about how an investment would be made. In the absence of direct evidence to the contrary, the assumption is that a user would have read the terms, especially in light of Block Earner’s evidence as to the customer onboarding process and the way and number of times the terms were shown and the customer’s obligation to acknowledge they had read them. The Court was of the view that, having read the Loan Terms, a user could not possibly be taken to have believed that they intended that Block Earner would use their contribution to generate a financial return or other benefit for them, because that is precisely what the terms said it would not do.
As the first element was not met, the Court held that Earner was not an Investment Facility.
And it wasn’t a derivative either
The Court examined whether the Earner product was a derivative. In doing so, the Court held that the first two requirements were not contentious, but that the parties disagreed on the meaning and effect of the third requirement.
In relation to the third requirement, ASIC:
- accepted that the mere accrual of interest on the cryptocurrency was not a derivative, because it was not pegging something to the value of something else; and,
- argued that the product acquired the character of a derivative because the amount of consideration that customers received in AUD varied depending on the exchange rate between AUD and the cryptocurrency on the day of exchange. As part of this argument, ASIC relied on the legal terms that provided that when the Earner loan came to an end, Block Earner would return the borrowed cryptocurrency to an equivalent value of Australian dollars under the exchange service.
Block Earner submitted that the third requirement was not met. It argued that the conversion from cryptocurrency to AUD was not part of the same “arrangement” because the ‘Loan Service’ was separate and distinct form the ‘Exchange Services’ in the legal terms. In addition, Block Earner submitted that it was not an inherent feature of the Earner product that the user’s cryptocurrency would be converted into AUD; rather, it was an optional and distinct service.
In response to this, ASIC accepted that if the “arrangement” within the meaning of the section did not include the Exchange Service, then the Earner product was not a derivative. But it contended that the exchange element was part of the “arrangement” because of section 761B of the Corporations Act.
The Court agreed with Block Earner, ruling that the Earner product was not a derivative because the exchange service was distinct and optional from the lend service. The Court found that the conversion of cryptocurrency to AUD was a separate process and not inherently part of the Earner product. Therefore, it was not necessary to consider whether the Earner product was a contract for the future provision of services or had the benefit of the credit facility exemption.
Court dismisses ASIC’s appeal; allows Block Earner’s cross-appeal
On the basis of the Court’s findings above, the Court held that:
- ASIC’s appeal be dismissed;
- Block Earner’s cross-appeal be allowed;
- the declarations of contravention made by the primary judge be set aside;
- the proceeding be dismissed; and,
- ASIC pay Block Earner’s costs of the appeal and the cross-appeal, together with the Block Earner’s costs of and incidental to the trial up to and including 9 February 2024.
ASIC has sought special leave to appeal the Court’s judgment on public policy grounds. This was anticipated by some in the industry, and it will be interesting to see if the High Court grants leave. Until then, the Court’s judgement is the law of the day, but there is still some inherent risk that this may change. This adds complexity and uncertainty to ASIC’s proposed updated guidance in INFO Sheet 225.
Our take on the decision
- Legal terms ‘rule’ – especially if they are clear, unambiguous and appropriately presented to clients. This is certainly consistent with previous case law and our views more broadly.
For this reason, we agree with the Court’s view that too much emphasis was placed on one FAQ by the primary judge for both the MIS and Investment Facility in circumstances that didn’t necessarily warrant a broader consideration of representations. While there may be cases that warrant a detailed examination of representations made to customers for MIS and Investment Facilities, this was certainly not the case for the Earner product given that the legal terms were clear and unambiguous and presented to customers multiple times.
- What is the relevant arrangement or product? – that’s critical to work out in assessing whether it falls within the financial product definitions.
When assessing whether a particular product or service may be a financial product, it is critical to properly define what actually comprises the product and service. In our experience, there’s sometimes too much emphasis placed on a component part (not the full product/service) and, other times, discrete offerings are viewed as a whole. It can be difficult to pinpoint what is the relevant “facility” or “arrangement”, but getting this right is key to understanding whether something falls inside or outside the regulatory perimeter. The case provides some instructional guidance on how to work this out.
Guidance for crypto innovators
Given the fluidity of the case law and , shifting regulatory parameters it’s no simple feat to designing an innovative product or service. While innovation always carries risks, , there are some tried and true methods to minimise those risks– which this case highlights.
The upshot is that if you’re thinking about launching a new innovative product or service, it’s critical that you design accurate legal terms and a transparent and easy to understand customer onboarding journey. It’s important to spend the time upfront getting this right. Block Earner certainly did this, and this played a critical role in the Court arriving at its decision. We often see this glossed over by businesses that are wanting to launch a beta solution to the market yesterday. This case is a cautionary tale and a reminder of how important it is to get the right advice upfront before launching a product or service.
It’s also important that any marketing or website collateral is consistent with the legal terms. It can help to get your lawyers to do a sanity check of any website collateral or marketing content before launch. Innovative user content is a must when launching, but it is important that any translation of the legal terms is correct, accurate and consistent. In our experience, the closer that your product / marketing team works with legal, the more likely you will get the right balance.
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For more information, please contact Michele Levine and Jaime Lumsden.
1Australian Securities and Investments Commission v Web3 Ventures Pty Ltd [2024] FCA 64.
2Australian Securities and Investments Commission v Web3 Ventures Pty Ltd [2025] FCAFC 58.
