19/10/2023 - The trial was held on 16-19 October 2023.
Judgement has been reserved and will be delivered in the coming months.
22/06/2023 - ASIC filed its amended statement of claim in the matter.
Download the statement of claim.
ASIC takes action against Qoin
In October 2022, Australia’s markets regulator, ASIC, filed a civil lawsuit against BPS Financial Pty Ltd (BPS).
ASIC brought allegations that the company which is behind the digital token Qoin, made misleading or deceptive representations and engaged in unlicensed conduct relating to a non-cash payment facility involving crypto assets.
Although ASIC is not suing Qoin for operating a pyramid scheme, it’s clear that ASIC does not believe the company has been operating responsibly.
These allegations have left Qoin investors and merchants in a rough situation, and needing to decide whether to keep their remaining hope in Qoin, or if there is still some recourse available to them.
What is Qoin and how does it work?
Qoin is a crypto asset token, that was created by BPS and launched in January 2020. BPS enabled investors and merchants to buy and sell Qoin exclusively on Block Trade Exchange (BTX) for AUD or use it to purchase goods and services.
BTX, a Digital Currency Exchange provider registered with AUSTRAC is owned by BPS, and both BTX and BPS are registered entities in the Gold Coast suburb of Bundall.
When Qoin was first launched, it was described as a smart digital currency that was built to facilitate a global community of buyers and sellers of goods and services.
Qoin was marketed towards small business owners (merchants) and retail consumers. Qoin tokens were promoted as a means of making payment for goods and services to other participating merchants in the ecosystem.
The similarities of Qoin to Bartercard should come as no surprise, with there appearing to be a strong affiliation between the two.
The vision of Qoin was to expand the merchant base to millions of merchants, where each merchant agreed to accept Qoin as a means of payment for their goods and services.
The Qoin Reserve (Reserve) was to administer this expansion and anyone who had Qoin could spend this digital currency in the participating merchant system, or to trade their Qoin for fiat or other crypto tokens through cryptocurrency exchanges.
Despite what BPS represented in its marketing, there were allegations made that Qoin merchant numbers have been declining, and there have been times where it has not been possible for users to exchange Qoin tokens through independent exchanges, as originally claimed.
Legal actions against Qoin
In 2022, the Australian market regulator, ASIC commenced proceedings in the Federal Court against BPS, the owner of BTX and issuer of the Qoin digital wallet facility, with the following allegations:
🏛️ ASIC alleges that Qoin’s combination of token, digital wallet and distributed ledger implemented using blockchain facility is a non-cash payment facility, the “Qoin Facility”.
ASIC has made the following further allegations that:
🏛️ in marketing the Qoin Facility, BPS made false, misleading or deceptive representations, including that:
- consumers who have purchased Qoin tokens can be confident that they will be able to exchange them for other crypto-assets or fiat currency (such as Australian dollars) through independent exchanges;
- Qoin tokens can be used to purchase goods and services from an increasing number of merchants registered with BPS;
- the Qoin facility and/or the Qoin wallet application used to transact Qoin tokens are regulated, registered and/or approved in Australia; and
- the Qoin facility and/or BPS are compliant with financial services laws.
Other than declining merchant numbers and the lack of market liquidity of Qoin on independent exchanges, ASIC is specifically concerned about the alleged misrepresentation that the Qoin Facility is regulated in Australia.
It is said that more that 79,000 individuals and entities who have been issued with the Qoin Facility believed that Qoin was compliant with financial services laws, whereas ASIC considers it is non-compliant.
ASIC is alleging that the Qoin Facility falls within the scope of a financial product that requires a financial license.
During the course of this lawsuit, ASIC is seeking declarations, pecuniary penalties and injunctions from the Court.
BPS, who does not agree with ASIC’s position, is currently reviewing the allegations and will be defending the matter.
⚖️ A case management hearing has been listed for 28 February 2023, with a trial set for 31 July 2023.
If one lawsuit was not enough, BPS is also facing a separate class action lawsuit, initially filed by Salerno Law in November 2021 in the Federal Court of Australia. It is the first ever crypto class action in Australia and plans to seek $100 million in damages from BPS.
In March 2021, BTX capped the sales of Qoin to $125 per account per day, which restricted users ability to swap all their Qoin into AUD. These restrictive limits that were imposed on users sparked outrage from investors, who decided to launch a class action in the Federal Court in November 2021.
Approximately 300 investors have joined the class action, who hold a combined investment of around $4.3million in Qoin. The investors allege they have been unable to sell their Qoin holdings and the Qoin crypto is illiquid.
⚖️ Latest update
Court proceedings for the class action has been “stayed” or paused, with the class action lead applicants required to pay $750,000 in security costs as a condition for continuing their claim.
These costs would be held by the court and paid if the class action goes to trial but does not succeed.
The Federal Court judge stated there was no evidence the investors could sell their Qoin tokens at the prices they wanted, hence they needed to prove they could cover their opponents’ legal costs if they ended up losing the case.
Can you claim a tax loss?
Whether investors are able to claim a tax loss may depend on how legal proceedings brought by ASIC progress and the impact it has on BPS.
At this stage, BPS is being sued for allegations of unlicensed conduct and misrepresentations surrounding their business activities.
If ASIC succeeds, there may be significant penalties and costs payable by BPS and legal sanctions imposed upon the business. The repercussions may significantly impact the business and the market value of Qoin.
However, if Qoin is successful in defending its position, we may see a positive shift in their business. Either way, it is too early to tell until there is an official ruling on the case.
Generally, to claim crypto assets as a tax loss, the ATO has certain requirements that need to be met. Usually, the ATO requires reasonable certainty on what amounts are truly lost and cannot be recovered.
Although there is uncertainty of what will unfold for BPS, it is still operating as a business and Qoin is still trading. At this stage there is no reasonable basis to claim a tax loss for Qoin investors due to the lawsuit itself.
If you want to claim a loss on your Qoin, then you’ll need to dispose of your Qoin crypto by selling it, to realise a capital loss in that income year.
If the BPS situation were to develop further into liquidation proceedings, then you’ll need to consider the tax outcomes due to bankruptcy.
Australian investors can only realise their losses by selling their Qoin tokens.