The Australian Securities and Investments Commission’s (ASIC) crackdown on financial influencers has been emboldened today after the Federal Court found share trader Tyson “ASX Wolf” Scholz breached laws by carrying on a financial service business without a licence.
The corporate watchdog alleged Scholz delivered training courses and seminars about trading in ASX-listed securities, promoted them via his Twitter and Instagram handle ‘@ASXWOLF_TS’ and made share purchase recommendations on social media without a licence between March 2020 and November 2021.
Scholz’s business model saw subscribers pay for $500, $1,000 or $1,500 training packages, with the lowest and highest tiers marketed as introductory or advanced seminars. The middle-tier package - dubbed ‘Black Wolf Pit’ - offered one-year access to a private chat room via communications platform Discord.
Nine months ago, the regulator warned it was cracking down on social media influencers who provided unlicensed financial advice, which can be penalised with imprisonment or a fine of up to $1 million.
In handing down her judgment, Honour Justice Downes said “the advice which was given by him was not a one off but formed part of the continuous and systemic business operations by which Scholz derived profit".
“Through his lifestyle posts and ‘life story’ posts on the Instagram account, Scholz had established a reputation as a successful share trader who had the ability to identify worthwhile companies in which an investment should be made,” Downes continued.
“It did not matter that the stories did not contain any overt recommendation to acquire the shares: it was enough that Scholz referred to a company or its share in the stories, which was usually done in a way which indicated that he liked that company.”
Justice Downes said by posting to Instagram indicating he had acquired shares in a particular company or that it was a good investment, the likely consequence of Scholz's conduct was that it would influence viewers of his stories to acquire the shares and his shareholding would increase in value.
"He knew this, admitting to Mr Danny Chen in June 2020 that he used Instagram to engage in a “clever way of pumping” (that is, increasing the price of shares). Mr Scholz told Mr Chen, “We should get positions” (that is, buy particular shares) and “let the word out”, also saying, “Only thing is I can’t charge them” and “That’s why [I] can get away with it”," Justice Downes said in her reasons for the judgment.
The judge noted Scholz posted numerous photographs and stories on the Instagram account which depicted himself enjoying a lavish lifestyle, giving the impression this had been achieved as a consequence of his share trading on the ASX.
"These posts appeared to be designed to encourage followers to see Mr Scholz as an expert in share trading who had achieved significant success," Justice Downes said.
"Such a conclusion is fortified by the fact that the Instagram account also utilised sponsored posts, which is a form of advertising on Instagram and which sought to entice people to follow Mr Scholz on the Instagram account.
"One example of a sponsored post depicted a Ferrari driving and drifting toward a bottle of champagne, with the post directing the viewer to the Instagram account operated by Mr Scholz."
ASIC has sent out a warning to other influencers, informing them they must hold an AFS licence (unless exempt or authorised to provide those services as a representative of another person who holds an AFS licence) if they carry on a business of providing financial services.
The content must also be accurate and balanced, as misleading posts may fall under breaking the law.
“ASIC has warned those who discuss financial products and services on social media that they could be the subject of enforcement action if they are carrying on a business of providing financial services without a licence,” ASIC deputy chair Sarah Court said.
“Financial services laws exist to protect investors if something goes wrong. The individuals who paid Scholz for his tips, to attend seminars or access private online forums, as well as those individuals who purchased shares based on his recommendations or statements of opinion, did not have the benefit of these protections.”
A case management hearing has been scheduled for 31 January to hear remaining matters, including any orders restraining Scholz from carrying on a financial services business without a licence.
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