The Federal Court of Australia ruled Friday that Bit Trade, the operator of Kraken Australia, breached the Corporations Act in offering its ‘margin extension’ product to consumers without first making a target market declaration.Australian Court Deals Blow to Kraken’s Operator as US Lawsuit Presses On
The case against Bit Trade was brought by ASIC in order to remind the crypto industry of its obligations to comply with regulations and protect consumers.
No penalties have been decided yet, but ASIC says it will pursue financial penalties against Bit Trade at a future date.
The Federal Court of Australia Friday ruled that Bit Trade Pty Ltd., the company that operates Kraken Australia, had breached the Corporations Act by failing to make a ‘target market determination’, as the law requires, prior to making a financial product available to retail investors.
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This ruling came as part of a case the Australian Securities and Investments Commission (ASIC) brought against Bit Trade over its ‘margin extension’ product, which was launched in 2021. ASIC has said it will pursue financial penalties against Bit Trade at a date yet to be set.
Court Rules Margin Extension Is Effectively a Credit Facility
Section 994b of Australia’s Corporations Act requires that before any financial product is offered to consumers, the party launching the product must first make a ‘target market determination’ for the product.
In his ruling the judge in this case, Justice Nicholls, said that “by issuing the Product (margin extension) to retail clients without having first made a target market determination for the Product, Bit Trade contravened s 994B(1) of the Corporations Act when read with s 994B(2).”
The judge based this ruling on his determination that Bit Trade’s margin extension product was essentially a credit facility when the margin extension created a debt in fiat currency, saying:
Somewhat confusingly, the judge also ruled Bit Trade’s margin extension product didn’t create a deferred debt when digital assets were borrowed instead of fiat currency:
ASIC Seeks to Remind Crypto Industry of Importance of Compliance
In a statement released following the ruling, ASIC said that Bit Trade breached the Corporations Act every time Kraken made its margin extension available to a customer: “Since 5 October 2021, Bit Trade’s ‘margin extension’ product has been available to customers trading on the Kraken exchange without a target market determination, as required by law. As a result, Bit Trade contravened s994B(2) of the Corporations Act each time it made the product available to a customer.”Australian Court Deals Blow to Kraken’s Operator as US Lawsuit Presses On
ASIC Deputy Chair, Sarah Court, said the regulator brought this case against Bit Trade to remind the crypto industry in Australia that it needs to comply with relevant legislation and make consumer protections a priority:
In a statement emailed to several media outlets, a spokesperson for Kraken Australia said “overall, we’re disappointed by today’s ruling, but we’re prepared and willing to comply with the court’s decision”.
The spokesperson also noted that the ruling highlighted the complexity crypto-based businesses faced in complying with Australian laws, saying that:
ASIC Case Comes as Kraken Faces Charges in US
This ruling in Australia comes just as a judge in the US found that the Securities and Exchange Commission (SEC) can proceed with its lawsuit against Kraken US for operating an unregistered exchange.
Kraken had asked for the SEC’s suit to be thrown out, but the judge ruled that:
Judge Orrick went on to clarify that he isn’t saying some cryptocurrencies are securities, but rather that some assets sold by Kraken were offered as part of investment contracts.
Kraken’s Chief Legal Officer, Marco Santori, claimed on X / Twitter that the judge’s ruling vindicates Kraken’s long held position that none of the cryptocurrencies it sells are securities, saying:
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