Overview: The Gold Coast Crypto Dream that Died
In late 2019, the Australian crypto landscape saw the emergence of Qoin, a digital token promoted by the backers of Bartercard, a trading exchange based on the Gold Coast with three decades of history. Issuers, Southport-based BPS Financial Limited (BPS), controlled by co-directors Tony Wiese and Raj Pathak, positioned Qoin as a digital currency intended primarily for businesses to exchange goods and services without relying on direct cash payments.
The initial appeal of Qoin was substantial. By 2021, BPS claimed to have signed up more than 35,000 merchants and amassed over 50,000 “wallet holders” who had acquired the digital product. The token’s value, according to BPS, had increased rapidly, rising from $0.15 to $9.19. This rapid perceived success led to promoters reportedly telling business owners anything to get them onto the directory, with some individuals believing they were participating in a “big investment”.
However, the vision of Qoin as a legitimate digital currency rapidly unraveled under intense regulatory scrutiny and widespread user frustration over its functionality. The core of the controversy stemmed from a fundamental flaw in its design: Qoin operated as a closed system, tightly controlled by its issuer, BPS Financial. Critics alleged that this structure created inherent conflicts of interest and ultimately stripped the token of genuine utility or liquidity.
The controversy culminated in major legal action on two fronts: a looming A$100 million class-action lawsuit brought by merchants and holders, and landmark civil penalty proceedings initiated by the Australian Securities and Investments Commission (ASIC). ASIC’s investigation targeted BPS for alleged unlicensed conduct and making deceptive claims that misled tens of thousands of participants.
Deep Fraud Mechanism: The Closed-Loop Trap
The architecture of the Qoin system was designed in a way that centralized control over transactions and liquidity, making it vulnerable to manipulation and ultimately resulting in a “token of no utility” for many holders.
The Vicious Cycle of Centralized Control
The key technical and financial mechanism underpinning the Qoin system was the symbiotic, exclusive relationship between the token issuer (BPS Financial Limited) and the exchange where the token could be traded for fiat currency (Block Trade Exchange Limited, or BTX).
- BPS Financial created and owned Qoin.
- BTX Exchange was the only platform where Qoin tokens could be swapped for fiat currency.
- Both BPS and BTX were overseen by the same two directors, Tony Wiese and Raj Pathak.
This structure meant that BPS effectively controlled the market in which its own product was valued, creating an alleged conflict of interest. The system was intended for merchants to exchange goods and services. However, when new merchants were attracted by offers of free Qoin tokens, they immediately began attempting to convert these incentive tokens into fiat currency rather than using them to purchase goods.
This influx of sellers overwhelmed the closed system, leading BPS to impose a drastic daily sell limit. According to the terms of the BTX Exchange, users were limited to one daily transaction with a $125 sell limit per day, per person, subject to buyer demand. Critically, while sales were capped, users could purchase any amount of Qoin between $100 and $10,000.
“It has been alleged by holders and merchants that they are either unable to accept Qoin payments or exchange the token for fiat currency due to the terms of BTX Exchange, leaving them with a token of no utility”.
This limitation had the consequence of a “bank run” on the Australian crypto. The limit caused outrage, leaving investors unable to swap all their holdings back into Australian dollars, rendering the tokens illiquid. As one critic noted, a system requiring constant waiting for a five-minute block sell batch to cash out $125 daily “doesn’t sound like an exchange—a professional exchange”.
Technical Definition: The Qoin Wallet as a Financial Product
A crucial element of the regulatory case launched by ASIC was the classification of the Qoin system under Australian law. ASIC alleged that the combination of Qoin tokens, the digital wallet, and the exchange operated on a blockchain constituted a “non-cash payment facility” (NCP), which is defined as a financial product under the Corporations Act.
In its landmark ruling, the Federal Court confirmed that BPS was indeed carrying on a financial services business unlawfully. Specifically, Justice Downes found that the relevant financial product was the Qoin Wallet alone, rather than ASIC’s submission that the entire “Qoin Facility”—including the tokens, blockchain ledger, and merchant system—was the product.
The Court’s reasoning established important jurisprudence in the crypto space:
- The financial product must be the direct mechanism that allows a person to make the non-cash payment.
- The Qoin Wallet was the arrangement between BPS and the user allowing the user to make NCPs.
- Peripheral systems, such as the Qoin Blockchain, which supported the wallet and recorded transactions, were not considered part of the financial product itself.
This finding confirmed that BPS was providing a regulated financial product (the Qoin Wallet) and had contravened sections of the Corporations Act 2001 (Cth) by engaging in unlicensed conduct.
Red Flags: Warning Signs of Illiquidity and Deception
Before the regulatory hammer fell, multiple red flags signaled instability and questionable practices within the Qoin ecosystem.
Liquidity Collapse and the Black Market
The financial viability of Qoin plummeted as buyer demand faltered. The 24-hour sell volume on BTX dropped dramatically from a peak of more than $700,000 to figures as low as $1,000 to $25,000 per day.
In response to the imposed daily sell limits and the inability to cash out at the official BTX price (around $9), a black market emerged where desperate holders advertised the sale of their Qoin to private buyers for fire-sale prices, sometimes as low as $1 or even 35 cents each. BPS executive Andrew Barker acknowledged the existence of this black market, stating that while it was perceived as “not a positive for the project,” the pricing was determined purely between the “anxious sellers” and buyers.
Expulsion and Criticism
In a major blow to its credibility, Qoin was expelled by the industry group Blockchain Australia (BCA) earlier in 2021. Although BCA did not immediately provide details for the expulsion, the timing aligned with allegations on social media, including a tweet from a former BCA director who labeled Qoin the nation’s “biggest crypto scam”.
BlockchainNZ noted that the Qoin system—a cryptocurrency tied to one sole marketplace—was not inherently illegitimate, but critics from the open-source community viewed Qoin negatively because it was not open source, decentralized, or immutable, failing to adhere to the core ethos of many blockchain projects.
Misleading Representations that Triggered Regulatory Action
ASIC specifically targeted several false or misleading representations made by BPS in its marketing and white paper. The Federal Court later affirmed that BPS had breached consumer protection provisions of the ASIC Act.
BPS falsely claimed or implied:
- Confidence in Independent Exchange: That someone purchasing Qoin could be confident they would be able to exchange them for other crypto-assets or fiat currency through independent exchanges, when no such exchanges existed. The Court found that BPS had no reasonable grounds to believe independent exchanges would be available after November 2021.
- Merchant Growth and Utility: That Qoin could be used to purchase goods and services from an increasing number of Qoin merchants. In reality, ASIC alleged—and the Court found—that merchant numbers were declining, and there was consistent evidence of a sustained decline in Qoin transactions.
- Official Registration and Compliance: That the Qoin financial product was officially registered or approved. The Court found that the Qoin Wallet had not been “registered” or “approved” by ASIC, and the use of such wording falsely imparted a sense of augmented reliability and compliance with financial services laws.
ASIC Deputy Chair Sarah Court emphasized that the regulator was “particularly concerned about the alleged misrepresentation that the Qoin Facility is regulated in Australia”.
Legal Status: ASIC’s Landmark Victory and the Class Action Fallout
The legal consequences for BPS Financial stemmed from two separate, but related, judicial processes: the private class action lawsuit filed by investors and the civil penalty proceedings initiated by the regulator, ASIC.
The Stayed Class Action
Queensland-based Salerno Law began preparing a potential A$100 million class action lawsuit in late 2021, seeing more than 100 merchants, agents, and consumers declare their intention to join. The firm investigated allegations including misleading conduct, making false representations, and pyramid selling of financial products. The class action represented approximately 300 people claiming a combined $4.3 million investment in Qoin.
However, the lawsuit faced a critical financial hurdle in the Federal Court. Justice Rodger Derrington ordered the lead applicants to provide $750,000 in security for costs by an October 2022 deadline. This money would be paid to BPS if the class action failed at trial. Justice Derrington noted that the two lead applicants appeared financially unable to meet this substantial cost requirement. Due to the lack of funding, the lawsuit was stayed (paused).
BPS director Tony Wiese denied wrongdoing regarding the potential class action, dismissing the allegations as baseless and attributing the crisis to a “witch hunt” waged by “detractors, faceless, fake names, and anonymous profiles” on social media. He also explicitly rejected the claim of pyramid selling, stating that BPS did not meet the basic outline of a pyramid scheme, as merchants are not charged fees to join and are under no obligation to recruit others.
ASIC’s Successful Licensing Challenge
In contrast to the class action, ASIC’s case proceeded successfully, resulting in a landmark victory against BPS Financial. The Federal Court initially ruled in May 2024 that BPS Financial had engaged in unlicensed conduct by issuing and providing financial advice about the Qoin Wallet without holding an Australian Financial Services Licence (AFSL).
BPS attempted to argue that it was exempt from needing its own AFSL by relying on the Authorised Representative Exemption, claiming it was acting “on behalf of” AFSL holders PNI Financial Services and Billzy Pty Ltd during different periods.
Justice Downes initially accepted that BPS could rely on the exemption during its arrangement with PNI because the agreement “by the plain terms” authorized BPS to issue the Qoin NCP product. However, ASIC successfully appealed this specific point to the Full Federal Court.
The ‘On Behalf Of’ Exemption Rejected
The Full Federal Court appeal focused on the facts of the PNI arrangement. The Full Federal Court found that BPS was acting on its own behalf—not on behalf of PNI—when issuing the Qoin Wallet.
Key reasons for the appeal court’s decision included:
- BPS developed the Qoin NCP Product well before having any dealings with PNI.
- PNI had little involvement in the issue of the Qoin NCP Product beyond authorizing BPS as a representative.
- The relevant documents (White Paper, Terms of Use) were prepared and issued by BPS and did not refer to PNI.
The appeal court described BPS seeking out AFSL holders as “AFSL provisioning,” a practice where a product issuer attempts to bypass obtaining its own license by relying on another license holder. Because BPS was determined to be acting outside the scope of the authorized representative agreement, it was ruled to be operating unlawfully and without a license.
This verdict is significant as it provides crucial judicial guidance on how Australian financial services laws apply to crypto-asset non-cash payment facilities and limits the scope of the authorized representative exemption, signaling that regulators are intent on taking targeted action against unlicensed conduct and misleading promotion in the highly volatile crypto sector. Penalties for BPS are set to be determined at a later date.
Writer’s Commentary
The foundational success of Qoin was neither rooted in brilliant technology—it was built on a basic proprietary blockchain and a customized wallet—nor true decentralization. Its success was purely psychological and infrastructural, leveraging the perceived trustworthiness of a known trade exchange model, Bartercard, to appeal to “mum and dad” investors and small merchants. The core cause of the scam’s effectiveness was the deliberate confusion between transactional utility and genuine fungibility. BPS designed a system where the token’s usage was mandatory and highly visible within the closed network, creating an illusion of high volume and value ($20 million transacted, $125 million claimed). This infrastructure-driven visibility fostered a speculative belief that Qoin was a legitimate, rising investment. When external demand failed to materialize, BPS’s control over the exclusive BTX exchange allowed it to introduce non-market technical constraints (the $125 daily sell cap). This exposed the fatal flaw: the token was only valuable inside the closed company store, and the moment participants attempted to cash out en masse, the system transformed from a currency into an illiquid asset, revealing that the infrastructure had been designed not to facilitate free trade, but to entrap capital. The initial hype and high valuations were manufactured consequences of controlling both the supply and the exclusive exit ramp.
REFERENCES
- cryptonews – $100 Million Class Action Lawsuit Looms Against Aussie Crypto Qoin
- coingeek – Qoin token faces $100M class-action lawsuit over pyramid selling and fraud
- jws – ASIC wins Qoin case: freshly minted jurisprudence on crypto, NCPs and the meaning of ‘on behalf of’
- abc – Concerns Qoin digital currency ‘doesn’t make sense’ as buyer demand falters
