In recent years, ASIC has issued a number of warnings to so-called “finfluencers” who promote investment products or provide financial advice on social media without a financial services licence. ASIC’s latest action shows that the risks of engaging in unlicensed financial services also extend to offshore cryptocurrency related offerings, following a guilty plea by an Australia-based promoter of the collapsed cryptocurrency platform, BitConnect.
On 16 May 2024, John Bigatton from New South Wales pleaded guilty in a Sydney court to providing unlicensed financial services on behalf of BitConnect contrary to section 911B(1) of the Corporations Act. Central to ASIC’s case against Bigatton was the allegation that BitConnect carried on a financial service business, which Bigatton helped promote during his time acting as a “national promoter” for the platform.
According to ASIC, BitConnect offered investment opportunities through its website, including a financial product known as the Lending Platform:
The Lending Platform was promoted as an investment opportunity and in order to participate, investors were required to acquire BitConnect coin (BCC), a cryptocurrency token offered by BitConnect through its website.
ASIC said the Lending Platform permitted lenders to invest or “loan” BCC for a fixed term in exchange for promised high interest rate returns. Investors did not control their loans once invested, nor could they withdraw their capital investment until the expiry of the lending period.
ASIC first charged Bigatton in 2020 and banned him from providing financial services for 7 years. ASIC alleged Bigatton undertook promotional activities for BitConnect and the Lending Platform on social media, including at seminars that he hosted around Australia, and through face-to-face meetings with investors. He promoted these products without an Australian Financial Services licence.
A sentencing hearing will take place on 5 July 2024 which will determine the penalty. A related charge of operating an unregistered managed investment scheme was withdrawn following Bigatton pleading guilty to the charge.
This case demonstrates ASIC’s tough stance against finfluencers and promoters of financial services and crypto-related products. In 2022, ASIC issued an information sheet for social media about discussing financial products and services online. The information sheet also emphasises that it is the influencers’ obligation to ensure that any content they post complies with the law.
The case also highlights the risks of promoting offshore cryptocurrency related offerings that are on risk of being deemed financial products. To prosecute finfluencers and other promoters, ASIC must first demonstrate that the products or services they promote are financial products or services. Here, ASIC’s case was made easier after the founder of Bitconnect was indicted in the US for allegedly running a USD$2.4 billion cryptocurrency Ponzi scheme.
Crypto-related product issuers need to carefully assess whether the functions and description of their products involve a financial product or service. Finfluencers and promoters should also carefully assess the products and services they promote. Even when a product issuer has collapsed or is based offshore, regulators may still try to find someone – such as a promoter of the product – liable. It is therefore vital for anyone involved in promoting products which could potentially be a financial product to have sound legal advice.
Michael Bacina – Partner, Piper Alderman
Steven Pettigrove – Partner, Piper Alderman
Jake Huang – Associate, Piper Alderman