Read the Article of Francesco Dagnino e Michele Mennoia (LEXIA Avvocati)
Its its recent judgment No. 26807 of 17 September 2020, the Italian Supreme Court, Criminal Section II, ruled, although in the context of a precautionary measure, on the nature of cryptocurrencies and, in particular, examined the controversial question of the legal qualification of Bitcoins as “financial products”.
Most news have defined this decision as “historical” commenting that the Supreme Court ruled that Bitcoins should qualify as “financial instruments”.
However, if one reads the arguments of the decision, it is clear that the Supreme Court of Cassation has stated something different.
The pending case before the Supreme Court had to do with the decision by which the Court of Milan, acting as Review Judge, had rejected the appeal brought against a decree of preventive seizure of sum of money which were linked to a series of sales of Bitcoin, through the website Bitcoingo: these purchases and sales that would have determined the commission of certain crimes including market abuse and money laundering.
According to the appellant in one of the grounds of appeal against the above mentioned decision, the Court of Appeal of Milan incorrectly held, on the basis of “a generic and imprecise reference to Community acts and Consob measures“, that “bitcoins qualify as financial instruments“. In support of this allegation, the appellant noted that “the virtual currency exchange activity had been defined by Legislative Decree no. 90 of 2017, establishing for money exchange companies a status of their own and thus removing them from the scope of application of the regulations on financial instruments because virtual currencies were not considered investment products, but means of payment“; such choice, according to the plaintiff, would have been “perfectly consistent with EU law and, in particular, with the opinion of EU Court of Justice in the preliminary ruling of 22 October 2016 concerning the exchange of virtual bitcoin currency against traditional currency, in which it was clarified that bitcoins had no other purpose than that of means of payment“.
The Supreme Court rejected the appeal and held that the applicant’s argument that “virtual currencies are not investment products, but means of payment [and are therefore] exempt from the regulations on financial instruments” does not consider that in the case in question the sale of bitcoin was “marketed as an investment proposal” (the website contained all the information to “put investors in a position to decide whether or not to make the investment” and claimed that “whoever bet in bitcoin over the past two years has earned more than 97%“). In consideration of the marketing activity carried out by the platform, the Supreme Court held that in that specific case the sale of Bitcoin should be considered as offer of financial product and therefore be subject to the obligation to publish a prospectus.
The Supreme Court in no way ruled that Bitcoins should qualify as “financial products” or “financial instruments” but has established a different principle, also important, according to which the purchase and sale of Bitcoins can qualify as offer of financial products if it is advertised as an investment proposal with an expectation of a profit.
This opinion is consistent with the consolidated position of CONSOB (expressed in the form of publication of answers to questions and suspension, prohibition and sanctioning measures), according to which investments of a financial nature included in the category of “financial products” are the investment proposals that imply the concurrence of the following requirements:
- capital investment;
- the promise or expectation that the value of the amount invested will increase without contributions from the investor other than that of giving a sum of money, and
- assumption of a risk directly connected to the capital investment.
With reference to the notion of “investment having a financial nature“, the Supreme Court has clarified that “the reason for negotiation is financial [when] the justifying reason for the contract, and not its simple internal reason without qualifying relevance, consists precisely in the investment of capital (the “block” of savings) with the prospect of the increase in invested funds, without the contribution of services by the investor other than that of giving a sum of money“.
As the financial innovation progressed, this approach has been further specified by CONSOB over time, until the following further elements of evaluation can be identified in order to determine whether an operation presents the distinctive elements of an investment of a financial nature:
- prevalence of the financial connotation over that of enjoying and disposing of the asset acquired through the operation;
- “effective and predetermined promise, at the time the contractual relationship is established, of a return linked to the res” such that “the expected increase in value of the capital employed (and the risk related to it) is an intrinsic element of the transaction itself”, different from the mere appreciation of the asset over time, thus accessing the very cause of the underlying contract (see CONSOB Communication no. DTC/13038246 of 6-5-2013).