A press release issued earlier today by the Australian Securities and Investments Commission (ASIC) revealed that the country’s largest securities market operator, ASX Limited, is now facing legal trouble over alleged misleading statements made by the operator about the shelved blockchain project.

The blockchain project, which was initially intended to overhaul ASX’s outdated share and settlement management system, was abruptly shut down in late 2022, sparking criticism and legal repercussions. The ASIC release read:

ASIC has commenced proceedings in the Federal Court against Australia’s largest market operator, ASX Limited, over alleged misleading statements in relation to the Clearing House Electronic Subregister System (CHESS) replacement project.

Blockchain Project: The Heart of the Matter

A review of ASIC’s press release shows that the lawsuit places particular emphasis on statements made by ASX in February 2022, which “optimistically” claimed that the blockchain initiative was “on track to go live in April 2023” and was “progressing well”.

However, ASIC claims these claims were “unfounded” and “misleading” as internal reviews at the time painted a different picture. The regulator noted:

ASIC alleges that these statements implied that the project was on track with ASX’s announced project plan and on track to meet future milestones, including ‘go-live’ in April 2023. ASIC alleges that these statements were misleading and deceptive because at the time of the announcements the project was not on track and ASX had no reasonable basis to imply that the project was on track to meet future milestones.

Interestingly, the problem arose when an external investigation by consultancy Accenture revealed several design flaws and significant challenges that contradicted ASX’s public commitments.

In November 2022, the situation escalated when ASX decided to pause the blockchain project after the disturbing findings of Accenture’s research became clear.

The pause was imposed amid growing concerns that the technology would not meet its intended milestones, a significant departure from the timetable ASX had shared with investors and the market.

ASIC Chairman Joe Longo commented on the matter:

Companies and market participants rely on what the ASX says about their business to make their own decisions and investments. We expect the ASX to be a place to list and invest with confidence. When the ASX fails, it has far-reaching consequences for the entire market.

Response to the lawsuit

The regulator is now seeking several measures against ASX, including issuing declarations of misconduct, financial penalties and a negative publicity order to address and correct misleading statements about the blockchain project.

Meanwhile, ASX has responded to the lawsuit by acknowledging the seriousness of the allegations and has committed to a thorough review of the claims. Helen Lofthouse, ASX managing director and CEO, said:

We recognise the significance and seriousness of these proceedings. We have fully cooperated with ASIC’s investigation and are now carefully reviewing and considering the allegations.

Following news of the lawsuit, ASX Limited’s share price has fallen almost 3% in the past day.

Main image created with DALL-E, chart from TradingView