The Australian Securities and Investments Commission [ASIC] has initiated legal proceedings against eToro. The recent lawsuit focuses on eToro’s contract for different [CFD] products. According to ASIC, the cryptocurrency firm failed to perform comprehensive screening tests before offering its “high-risk” leveraged derivative contracts to retail investors. The financial regulator took to Twitter to announce the lawsuit and also called out the exchange.
ASIC describes eToro’s CFD products as a leveraged derivative contract enabling clients to speculate on fluctuations in the value of an underlying asset. This may include foreign exchange rates, stock market indices, individual equities, commodities, or cryptocurrencies. Currently, eToro offers all of the above.
eToro’s cryptocurrency CFDs, in particular, offer a leverage of up to two times on specific assets. Additionally, the platform also provides coverage for stocks, currencies, commodities, and precious metals through other CFD options. ASIC further said,
“eToro’s screening test was very difficult to fail and of no real use in excluding customers for who the CFD product was not likely to be appropriate. For example, clients could amend their answers without limitation and clients were prompted if they selected answers which could result in them failing.”
Furthermore, ASIC accused the exchange that during the period between Oct. 5, 2021, and June 14, 2023, about 20,000 users of eToro incurred losses while trading CFDs. The financial regulator pointed out that eToro’s website itself discloses that 77% of retail investor accounts lose money when engaging in CFD trading with the platform. Additionally, the regulator is seeking court declarations as well as financial penalties.
Also Read: Coinbase Urges Australia to Fast-Track Crypto Regulation
eToro’s $120 million secondary deal
The Australian regulator took action only two days after eToro, conducted a $120 million secondary share sale. In the secondary sale, the company’s valuation was slightly lower than $3.5 billion. This was achieved in a primary funding round earlier this year. The firm provided an opportunity for its early employees and angel investors to sell their shares to certain institutional investors. However, the stock trading platform clarified,
“This is not a primary, i.e., eToro is not raising money, rather it is a moment for some long-standing shareholders and employees to take some liquidity.”
Several fear that the latest lawsuit could impact the firm negatively.
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