ASIC targets crypto firms after $160m investor loss

Hundreds of Australian investors have lost over 160 million Australian dollars ($104 million) following the liquidation of three cryptocurrency mining companies: NGS Crypto Pty Ltd, NGS Digital Pty Ltd, and NGS Group Ltd, collectively known as “NGS companies.”

On April 12, a report revealed that the Australian Securities and Investments Commission (ASIC) initiated civil proceedings against the NGS companies and their directors, Brett Mendham, Ryan Brown, and Mark Ten Caten.

These companies are accused of persuading local investors to set up self-managed superannuation funds (SMSFs) and invest them in blockchain mining packages, promising fixed-rate returns.

The ASIC claims that around 450 investors placed approximately 62 million AUD ($40 million) with these firms, which lacked the necessary Australian financial license.

The commission was particularly concerned about the risk of losing the digital assets involved in blockchain mining and successfully obtained a Federal Court order to appoint liquidators to manage the digital currencies held by the NGS companies. Additionally, a travel ban was imposed on Mendham.

Furthermore, ASIC has taken steps to stop NGS companies from illegally providing financial services in Australia.

ASIC Chair Joe Longo warned Australians about the risks of investing SMSFs in cryptocurrencies and emphasized the commission’s dedication to monitoring crypto offerings to ensure they comply with regulations and protect investors.

Meanwhile, other Australian cryptocurrency organizations, such as DCA Capital, Digital Commodity Assets Pty Ltd, and the Digital Commodity Assets Fund, are undergoing liquidation and facing federal court actions.

Investor concerns about mismanagement, inadequate licensing, and possible violations of managed investment scheme regulations have triggered these proceedings.

KordaMentha, the liquidator, reported finding debts of 100 million AUD ($65 million) owed by these firms to 100 investors. The Federal Court has also frozen assets worth 55 million AUD ($36 million) belonging to Ashod Balanian, the director of DCA Capital, and ordered him to hand over his passport.

Following recent legal developments with the NGS companies, the Australian Securities and Investments Commission (ASIC) is also appealing a Federal Court decision regarding Finder Wallet Pty Ltd. The court previously dismissed ASIC’s civil penalty lawsuit against Finder Wallet, a subsidiary of the digital currency exchange

Finder Wallet, which operated from late February to November 10, 2022, offered an investment product called Finder Earn. ASIC had accused the company of operating without an Australian Financial Services license and violating several regulatory obligations.

On March 14, 2024, Justice Brigitte Markovic ruled that the Finder Earn product did not qualify as a debenture under the Corporations Act, leading to the lawsuit’s dismissal.

In response to the appeal, a spokesperson for Finder Wallet told that it had been actively involved in proposing regulations and had engaged consistently with ASIC throughout the process.

Finder Wallet defended its product vigorously in court, emphasizing that the initial ruling was based on a detailed examination of all the evidence, which will remain unchanged in the appeal.

The firm also expressed respect for ASIC’s difficult position and highlighted their ongoing commitment to constructive dialogue. Additionally, they reiterated their dedication to innovation, emphasizing that their product was designed with the best interests of their customers in mind.

This appeal is part of ASIC’s new strategy to pursue riskier litigation cases, even at the risk of facing losses, to ensure stringent regulatory compliance in the complex cryptocurrency sector.

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