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Securities and Investments Commission (ASIC) over misleading statements about a blockchain project to replace its outdated Clearing House Electronic Subregister System (CHESS).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.
The project was slated to be a modern solution for how the ASX manages its shareholdings and settlement. Still, it turned into a significant legal stoush after allegations that the Stock Exchange had misrepresented the progress of the project.
ASIC has gone to the media with allegations against ASX over announcements made in February 2022. In its statements, ASIC argued that the blockchain project is “progressing well” and has “been planned to deliver a working system,” both of which are 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 blockchain project was developed to replace CHESS; however, in November of 2022, ASX pulled the plug on the IBM-backed system and flagged a delay after an independent review by Accenture identified “many significant issues” with its design. This decision resulted in the entire project grinding to a halt, leading to a writedown of A$250 million.
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.
In response to the lawsuit, ASX said it regarded the two proceedings as very serious and had fully cooperated with ASIC’s investigation. Helen Lofthouse, the managing director and CEO of ASX, said they acknowledge the importance and serious nature of these proceedings.
ASIC has made clear that our cooperation with their investigation enabled us to provide the information they needed, and we are now in the process of reviewing and considering the allegations carefully.”
The impact of the lawsuit has already been felt in financial markets. The drop of 3.67% on Wednesday indicated that investors were concerned, as ASX’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.