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The nation’s consumer watchdog has secured a win in its crackdown on crypto after the Federal Court ruled today that Gold Coast-based BPS Financial made false, misleading or deceptive representations of crypto-asset Qoin to almost 80,000 customers.
The action, launched by the Australian Securities and Investment Commission (ASIC), found the company misled consumers about Qoin tokens, advertising they could confidently exchange them for other crypto-assets or fiat currency through independent exchanges, when no such exchanges existed.
The Federal Court also ruled BPS Financial misled or deceived consumers by marketing that Qoin could be used to purchase goods and services from an increasing number of merchants when that was not the case, and that the digital currency had received official government approval or was included in an official register of Australian financial products despite having no such compliance.
Qoin was the brainchild of Raj Pathak while he was general manager at Gold Coast trade exchange business Bartercard, which he acquired and privatised alongside his crypto co-founder-to-be Tony Weise in 2018, which now goes by the name BPS Financial.
In 2020, the pair launched the crypto-asset token Qoin, with the company's website claiming the digital currency is used more than 30,000 registered businesses, with a valuation that has gone from $0.18 to $10.14 per token. The company also claims that from January 2020 to December 2023, users have transacted more than $2.5 billion of Qoin across 554,000 transactions.
In court documents, ASIC claimed that from around 11 December 2020 to 21 November 2021, it was not possible to exchange Qoin Tokens for fiat currency on any exchange except on the Block Trade Exchange (BTX). According to the company website, the exchange stopped offering its services around March 2023 following widespread volatility in the crypto market.
BTX, BPS Financial and Qoin are all owned by Pathak and Weise, and are registered entities in the Gold Coast suburb of Bundall.
“Despite what BPS represented in its marketing, Qoin merchant numbers have been declining, and that there have been periods of time where it was not possible to exchange Qoin tokens through independent exchanges,” ASIC Deputy Chair Sarah Court said when legal action was initiated in October 2022.
“ASIC is particularly concerned about the alleged misrepresentation that the Qoin Facility is regulated in Australia, as we believe the more than 79,000 individuals and entities who have been issued with the Qoin Facility may have believed that it was compliant with financial services laws, when ASIC considers it was not.”
In the judgment, Justice Downes also found BPS Financial contravened the Corporations Act 2001 by carrying on a financial services business without holding an Australian financial services licence (AFSL).
In November 2021, Australian law firm Salerno Law filed one of the first ever cryptocurrency class action lawsuits in the country on behalf of group members against Qoin and its related entities. The class action is still ongoing and claims to seek $100 million in damages from BPS.
The ruling comes more than year since the regulator also launched proceedings against Finder Wallet, a subsidiary of comparison website Finder.com which was founded by Fred Schebesta, Frank Restuccia and Jeremy Cabral, although Finder won in court recently.
ASIC has also launched legal action against Block Earner – a Sydney-based crypto exchange.
A hearing to determine the remaining questions in the Qoin case, including the relief sought by ASIC, will be held later in 2024.
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