The Australian Securities and Investments Commission (ASIC) has initiated legal action against three blockchain mining companies and their directors for allegedly encouraging investors to convert their SMSF funds into cryptocurrencies.
The corporate regulator applied for orders to be made against Brett Mendham, Ryan Brown and Mark Ten Caten and the companies they directed, NGS Crypto Pty Ltd, NGS Digital Pty Ltd and NGS Group Ltd, which were subsequently granted by the Federal Court on 10 April.
Following an investigation, ASIC alleged the NGS companies encouraged individuals to invest in blockchain mining packages with fixed-rate returns using funds transferred from Australian Prudential Regulation Authority-regulated funds into SMSFs and then converted into cryptocurrencies.
The investigation found 450 Australians invested more than $62 million with the companies, with the regulator taking action over concerns the digital assets held by those investors were at risk of being lost or misused.
The Federal Court appointed Anthony Connelly, Kathy Sozou and Jamie Harris of McGrathNicol as receivers over the digital currency assets of the NGS companies and of Mendham, Brown and Ten Caten. Additionally, the court made travel restraint orders to prevent Mendham from travelling outside of Australia.
Specifically, the regulator alleged the NGS companies contravened section 911A of the Corporations Act by providing financial services without an Australian financial services licence (AFSL).
As part of the proceedings, ASIC is also seeking interim and final injunctions against the NGS companies, preventing them from providing financial services in Australia without an AFSL.
ASIC chair Joe Longo stated: “Australians who decide to self-manage their super should consider the risks before using their SMSF to invest in crypto-related investment products such as blockchain mining.
“These proceedings should also send a message to the crypto industry that products will continue to be scrutinised by ASIC to ensure they comply with regulatory obligations in order to protect consumers.”
ASIC urged impacted investors to contact the receivers at McGrathNicol with any queries as the investigation into the conduct of the NGS companies continues.