The Federal Court of Australia has ruled that blockchain mining companies NGS Group Limited, NGS Crypto Pty Ltd, and NGS Digital Pty Ltd engaged in operating a financial services business without obtaining the necessary Australian Financial Services (AFS) licence. As a result, the Court has issued a permanent injunction against these companies, prohibiting them from conducting any further financial services activities.
In a significant decision, the Court also ordered the winding up of NGS Group and NGS Crypto, along with an unregistered managed investment scheme linked to NGS Group. Liquidators have been appointed to oversee the process. Over the span of six years, approximately 450 Australians invested around $59 million with NGS Group, many of whom used their retirement savings through self-managed superannuation funds (SMSFs) that NGS Crypto promoted.
NGS Companies Acted in Violation of Corporations Act
The Court’s findings revealed that the NGS companies not only operated without the required licence but also promoted an unregistered managed investment scheme in “blatant contravention of the Corporations Act.” Sarah Court, Deputy Chair of the Australian Securities and Investments Commission (ASIC), emphasized the seriousness of the violations, stating that the NGS companies disregarded Australian financial services laws, which ultimately left investors vulnerable to substantial financial losses.
“This was compounded by encouraging people to invest through self-managed superannuation funds, putting their retirement savings outside a licensed regime,” Ms. Court stated. She further explained that the licensing framework is designed to ensure that investors receive adequate information regarding their investments from qualified advisers, and that their investments are managed appropriately.
The Court ruled that the failure of NGS Group to obtain an AFS licence directly harmed investors and eroded confidence in the company’s management. In its assessment of NGS Crypto, the Court found that it operated in violation of the Corporations Act, adversely affecting hundreds of investors.
Legal Accountability for Unlicensed Operations
Acting Chief Justice Collier noted that after NGS Crypto became aware of ASIC’s concerns about its operations, the company’s management failed to address critical deficiencies. “In those circumstances, I have no confidence in the conduct and management of NGS Crypto in respect of its affairs,” she stated.
The Court’s decision to wind up NGS Group reflects a broader commitment to uphold financial regulations and protect investors from unlicensed schemes, particularly in the rapidly evolving landscape of cryptocurrency and blockchain technology. The ruling serves as a stark reminder for companies operating in this sector to adhere strictly to financial services laws to safeguard both their interests and those of their investors.
