ASIC has taken legal action against eToro, a cryptocurrency firm, over its contract for various CFD products. The lawsuit accuses eToro of failing to conduct thorough screening tests before providing its “high-risk” leveraged derivative contracts to retail investors. The financial regulator made an announcement on Twitter about the legal proceedings and also criticized the exchange. ASIC defines eToro’s CFD products as leveraged derivative contracts that allow clients to speculate on the fluctuations in the value of underlying assets, such as foreign exchange rates, stock market indices, individual equities, commodities, or cryptocurrencies. Currently, this company offers all the aforementioned products.
eToro’s cryptocurrency CFDs offer leverage of up to two times on specific assets. The platform also includes other CFD options, providing coverage for stocks, currencies, commodities, and precious metals. According to ASIC, this company’s screening test for these products was excessively lenient, making it ineffective in excluding customers for whom the CFD product might not be suitable. Clients were allowed to modify their answers without restrictions, and the system prompted them if their responses could lead to failure.
ASIC further accused this trading company of having around 20,000 users who incurred losses while trading CFDs between October 5, 2021, and June 14, 2023. The financial regulator highlighted that eToro’s own website acknowledges that 77% of retail investor accounts lose money when engaging in CFD trading with the platform. In response to these findings, the regulator is seeking court declarations and financial penalties against eToro.
eToro’s Secondary Funding Round Nets $120 Million
Just two days after eToro conducted a $120 million secondary share sale, the Australian regulator took action. During the secondary sale, the company’s valuation was slightly below $3.5 billion, which had been established in a primary funding round earlier in the year. In the secondary sale, this trading company allowed early employees and angel investors to sell their shares to specific institutional investors. However, the stock trading platform emphasized that this was not a primary fundraising event; instead, it provided an opportunity for long-standing shareholders and employees to realize some liquidity.
Many are concerned that the recent lawsuit might have a negative impact on the company.