The corporate watchdog has launched legal action against the company that owns Gold Coast-based digital currency Qoin, alleging it made false, misleading or deceptive representations to almost 80,000 users.
BPS Financial Limited is also being accused of engaging in unlicensed conduct and the Australian Securities and Investments Commission (ASIC) has commenced civil penalty proceedings in the Federal Court against the company.
ASIC alleges the company made false, misleading or deceptive representations when it informed consumers that the digital currency could be exchanged for cryptocurrency or Australian dollars on an independent exchange.
It also claims BPS made false, misleading or deceptive statements by stating that consumers could use Qoin to purchase goods and services through an increasing number of businesses and merchants that use the digital currency.
ASIC claimed that statements from BPS that Qoin was compliant with financial services laws and that the application used to transact it was registered, regulated or approved in Australia were false, misleading or deceptive.
In a statement, BPS Financial Limited's Director Tony Wiese said the company was reviewing ASIC's actions.
"BPS does not agree with the position of ASIC and will be defending the matter," he said.
"Our focus remains to develop the Qoin project technology and ecosystem."
Alleged misrepresentations
ASIC deputy chair Sarah Court said Qoin had allegedly misrepresented itself to investors or consumers.
"We allege that, 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," she said.
"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."
According to its website, the number of merchants registered with Qoin has grown to 38,000.
But Ms Court said ASIC would allege that growth was misleading.
"We allege that when investors purchased these Qoin tokens, the areas or the stores and merchants which they could use them in were actually decreasing," she said.
Ms Court said the proceedings were at an early stage, but noted "the maximum penalties available run into the millions of dollars".
ASIC will also seek an injunction from the Federal Court to prevent BPS marketing Qoin as it has in the past.
She said an adverse publicity order would also be sought to require BPS to make a public statement outlining the Federal Court's decision.
A date for the first case management hearing has not yet been set.
History of Qoin
Launched in early 2020, Qoin promoted itself as a crypto asset that could be sold for Australian dollars exclusively on the Block Trade Exchange (BTX) at a pre-determined price, or used to buy goods and services.
Both BTX and Qoin are owned by BPS, which led to concerns about transparency and conflicts of interest in the past.
In February 2021, Qoin was expelled from Blockchain Australia, a body which represents about 70 organisations.
Blockchain Australia declined to comment at the time.
In March 2021, BTX capped the amount of Qoin that could be sold per day to $125 per user.
The daily volume of Qoin being sold on BTX collapsed from a high of about $700,000 in early 2021 to zero dollars this week.
In November 2021, a class action was launched against Qoin in the Federal Court, alleging it has made false or misleading representations, which Mr Wiese has denied.
The ABC understands the entities behind Qoin, including BPS, have made an application to dismiss after the Federal Court stayed the action.
A first for ASIC
Ms Court said this was the first time ASIC had taken proceedings "looking at a particular crypto asset category".
"The whole area of crypto, whether or not crypto assets are financial products, is a relatively new area," she said.
"We think, when you look at all this together, this really is a financial product and that investors should have the appropriate protections that are offered under the corporations laws."
Ms Court said this action sent a message to the crypto industry.
"They have to be very clear about what they're representing or telling the public," she said.
"We know that crypto-assets are inherently risky and they are volatile.
"The significance of the case is really to put the industry on notice that, in a circumstance where representations are made about a crypto asset, they have to be true, backed up by facts and our allegations here are that was not the case."
