ASIC Sues ASX Over Misleading Statements About Blockchain Project

Australia’s biggest market operator, ASX Limited, is being sued by the Australian Securities and Investments Commission (ASIC) over misleading statements about a blockchain project

The Australian Securities and Investments Commission (ASIC) has filed a lawsuit against ASX Limited (ASX:ASX), accusing the market operator of making misleading statements about a blockchain project that was ultimately scrapped.

The project, which began in 2018, was intended to replace ASX’s outdated Clearing House Electronic Subregister System (CHESS). However, it turned into a significant legal stoush after allegations that ASX had misrepresented the progress of the project.

In its statements, ASIC alleges that ASX’s announcements in February 2022, which stated that the blockchain project was “progressing well” and had “been planned to deliver a working system,” were both false.

ASIC asserts that these representations were misleading because the project was not, in fact, on track, and ASX did not have a reasonable basis to infer that it would meet future milestones.

The regulator also claims that ASX knew, or ought to have known, that the statements were materially misleading at the time they were made.

The lawsuit stems from ASX’s decision to scrap the blockchain project in November of 2022. The project, which was being developed with the help of IBM, was ultimately halted after an independent review by Accenture identified “many significant issues” with its design.

This decision, which was made after more than A$100 million had already been sunk into the project, resulted in the entire undertaking grinding to a screeching halt.

The setback also led to a writedown of A$250 million, which was announced by ASX in May of 2023.

Commenting on the lawsuit, ASIC Chair Joe Longo said the issues at ASX have “implications beyond the exchange,” with National Stock Exchange of Australia CEO Ken Chapman highlighting that when ‘ASX fails, there is a massive impact on everything else.’

“Investment in mining and exploration companies is a speculative activity. Companies rely on the ASX’s statements about its functions to make their decisions and investments,” Chapman said.

In response to the lawsuit, ASX said it regarded the two proceedings as very serious and had fully cooperated with ASIC’s investigation.

“We acknowledge the importance and serious nature of these proceedings. ASIC’s investigation enabled us to provide the information they needed, and we are now in the process of reviewing and considering the allegations carefully,” Helen Lofthouse, the managing director and CEO of ASX, said.

The impact of the lawsuit was already being felt in financial markets on Wednesday, with the ASX experiencing a drop of 3.67%.

Investors appeared to be concerned about the legal troubles, as the bourse’s stock price closed at A$63.45.

The company, which has a market cap of A$12.3 billion, is due to report full-year financial results on Friday for the year ended June 30, 2024.

ASIC is seeking various remedies, including declarations, financial penalties, an order for adverse publicity, and a costs finding against ASX.

This lawsuit offers a high-profile reminder of the importance of corporations being transparent and accurate when making public statements, particularly regarding major technological changes that can affect an entire financial market.