Scam or be scammed? FTX, BPS and the Wild West of the modern cryptosphere

Whether you’re keeled over in (financial) pain, laughing in glee, or just generally absorbing the drama of another crypto-exchange collapse, the cryptosphere has left people fascinated and confused for more than a decade.

Tall tales of Individuals earning one or two THOUSAND percent returns on cryptocurrencies like Bitcoin, Ethereum or even Doge, have roped in retail punters in droves. Predictably, a number of institutions and individuals have attempted to capitalise on retail FOMO and lack of financial know-how through less-than-scrupulous means. 

FTX, an international crypto exchange, entered bankruptcy on 11 November owing creditors US$3.1 billion, with appointed liquidator John Ray III (of Enron liquidation fame) stating: “[n]ever in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here”. Which – considering the Enron part of his career – is quite a statement to make. FTX purportedly fudged not only its financial and user data, but also misused what consumer funds it did have. 

Speaking of misleading representations, while FTX burns from the inside, the Australian Securities and Investments Commission (ASIC) has stepped in in the matter of BPS Financial (BPS) over the marketing of its Qion token in Australia (ASIC Media Release) – indicating an expanding willingness by local regulators to take a harsher stance against unlicensed conduct and misleading representations in the Australian-arm of the cryptosphere. 

In relation to that token, BPS allegedly claimed:

1. That Qion token purchasers could be confident of exchanging their tokens into fiat currency through independent exchanges;
   
2. That Qion tokens could be used at an expanding number of merchants registered with BPS; and,
   
3. That Qion tokens were registered, regulated, and approved in Australia and that Qion and BPS were compliant with Australian financial services laws. 

For the gamblers at home, and as illustrated by the monstrous size and rapidity of FTX’s collapse, the inherent problem with such (alleged) claims anywhere in the cryptosphere is that the cryptocurrency market is anything but stable in nature. Like predicting the outcome of litigation, predicting the future of the crypto market – let alone trends such as adoption of a particular token – can be a fool’s errand.

While it might seem trite, for those actively playing in the sphere it quite literally pays to be skeptical of outsized claims. Overall, the BPS proceeding seems to indicate a greater willingness to intervene and regulate the market and its players to protect Australian consumers. 

Keen on crypto? For all the latest on the cryptosphere, including a rundown of the history of decentralised ledgers, the uses of blockchain technology, and where the regulatory landscape sits today, check out Outsmarted? Blockchain, Smart Contracts and the Future of Lawyers. CPD for Australian lawyers – the Hearsay way. 

By: Hearsay: The Legal Podcast with research by Ben Nguyen.