Corporate cop ASIC sues Finder for alleged ‘unlicensed conduct’ over its crypto product Earn

Corporate regulator the Australian Securities & Investment Commission (ASIC) has launched ASIC has launched Federal Court action against a subsidiary of comparison website Finder over its recently closed crypto production, Finder Earn.

ASIC alleges that Finder Wallet Pty Ltd provided unlicensed financial services, breached product disclosure requirements and failed to comply with design and distribution obligations (DDO) with Finder Earn.

Finder Wallet offered Finder Earn between late February and 10 November this year.

The legal action paints Finder’s sudden announcement late last month that it was shutting down Finder Earn, giving customers just 48 hours notice of its closure in a whole new light.

In a blog post titled “Finder Earn has been sunset”, the company said it “no longer” served customers amid rising interest rates.

“To put it simply, we have determined that Earn is no longer serving our members as it did in a low-rate environment,” the company stated.

Last week the company announced that cofounder Fred Schebesta, a cryptocurrency advocate, is stepping down from his role as co-CEO and taking more of a back seat as the company’s colourful public face.

It now turns out Finder was already aware that ASIC had serious concerns about the product.

In a media release today announcing the legal action, ASIC said that after it notified Finder Wallet about its concerns, the company shut down Finder Earn on November 24.

ASIC alleges that Finder Earn was, in substance, a debenture, because customers deposited money with Finder Wallet on the understanding that their money would ultimately be repaid, together with a return for allowing Finder Wallet to use their capital.

Users deposited Australian dollars into their accounts, which were then converted to an Australian dollar-denominated ‘stablecoin’ called TAUD and allocated to Finder Wallet to use for its own working capital. Finder Wallet paid customers (in Australian dollars) an annual compounding return of either 4.01% or, in some circumstances, 6.01%, in exchange for the use of their funds by Finder Wallet.

ASIC also alleges that Finder Wallet required an Australian financial services licence to offer Finder Earn, because it was providing financial product advice or dealing in a financial product. ASIC alleges that offering Finder Earn without a licence exposed consumers to potential harm, including the possibility that they were offered a product that was not suitable for them.

ASIC Deputy Chair Sarah Court said that because Finder Earn appeared to be a financial product, Finder Wallet had a requirement to comply with disclosure and DDO obligations to protect consumers.

“Issuers of financial products such as debentures must issue appropriate risk disclosure documents and develop appropriate target market determinations to ensure that consumers are not sold inappropriate products. We allege that Finder Wallet failed to do this, potentially putting their customers at risk of harm,” she said.

“This is ASIC’s third recent action against a firm offering a crypto-asset related product that we consider to be a financial product. Our message to industry is clear – just because an offer involves a crypto-asset related product does not guarantee it will fall outside the current regulatory regime.”

ASIC is seeking declarations and pecuniary penalties and a date for the first case management hearing is yet to be scheduled.

In response to the legal action, a Finder spokesperson said “We do not share ASIC’s view that Finder Earn can be regarded as a debenture. Since Finder Earn was launched in November 2021, we have proactively engaged with ASIC and have cooperated fully with all ASIC requests for information.”