The Federal Court of Australia recently made a decision to grant relief to a company under section 1317S of the Corporations Act 2001 (Cth) after finding that the company had contravened two civil penalty provisions related to a crypto product. The company, Web3 Ventures Pty Ltd trading as Block Earner, was found to have operated an unregistered managed investment scheme and carried on a financial services business without the necessary license.
The court decided to relieve Block Earner from liability to pay a pecuniary penalty based on the fact that the company had acted honestly, tried to comply with the law by seeking legal advice, and that no investors suffered any loss or damage due to the contraventions. The court also considered the uncertain regulatory environment in which the contraventions occurred and Block Earner’s willingness to engage with the government on crypto regulation.
While relief under section 1317S is not commonly granted and is at the court’s discretion, this decision provides insights into the circumstances that may lead to such relief. Factors such as a genuine attempt to comply with the law, absence of harm to investors, and engagement with regulators can weigh in favor of relief. The court also took into account the declarations made against Block Earner, the company’s financial situation, and the need to ensure that any penalty is not oppressive.
The Australian Securities and Investments Commission has appealed the decision, arguing that the court misunderstood the scope and effect of the legal advice provided to Block Earner. If the appeal is successful, it could impact the willingness of courts to grant relief under section 1317S to crypto-asset service providers, given the uncertainty surrounding their regulatory treatment.
Overall, this case highlights the importance of companies in the crypto space ensuring compliance with relevant laws and regulations, seeking legal advice when necessary, and engaging with regulators. It also underscores the discretion of the court in granting relief from liability and the potential implications of such decisions on the industry as a whole.