The use of social media influencing in the financial product space will not escape ASIC’s notice as it continues to monitor social media platforms, with unlicensed finfluencers in its sights.
ASIC commenced legal proceedings against the finfluencer Tyson Scholz in 2022. A month ago, on 13 April 2023, ASIC obtained permanent injunctions against Mr Scholz in a hearing on liability to restrain him from carrying on a financial services business or hosting online groups without an Australian Financial Services License (AFSL).
Since early 2020, using the handle ‘ASX Wolf’, Mr Scholz regularly posted about companies in which he had acquired shares or which he thought would be good investments. The evidence showed that his Instagram posts were designed to pump certain stock he had bought. Posts also promoted seminars designed to train people about how to trade on the ASX for a fee. Mr Scholz’s posts were combined with posts about his lavish lifestyle and an enviable luxury sports car collection.
The Instagram stories and the online seminars were found to ‘influence’ within the meaning of section 766B(1) of the Corporations Act. As Mr Scholz’s overall operations were continuous and systematic and there was a profit making purpose, the conduct constituted a financial service business which attracts the need for a licence under s911A of the Act.
This result transpired despite the finding of the Court that Mr Scholz did not usually give any direct encouragement to his followers to buy the shares about which he expressed opinions. It is not to the point that Mr Scholz’s posts did not contain any overt recommendations to invest in particular securities. It is the influence he exerted by reference to the posts and the business model as a whole which was found to be relevant.
The key takeaway is that the Court will look at the totality of the evidence to determine whether (1) any financial product advice has been given (directly or indirectly) and (2) whether that advice has been given in such a way as to fall within the definition of ‘financial service business’.
If it applies on Instagram, it applies everywhere. Financial product advice does not need to be communicated in an accountant’s office to fall within the definition in the statute. ASIC will look at patterns of conduct that seek to influence members of the public or private customers with a view to cracking down if it is being conducted systematically, in a commercial context, for profit and without a licence. There is no social media defence available.
Apart from making restraint orders, the Court ordered Mr Scholz to pay ASIC’s costs. Of course, where the financial product advice he gave leads to losses suffered by his followers or those who invested in reliance on the advice in his posts/seminars, Mr Scholz may remain exposed to actions in negligence or for misleading or deceptive conduct.
If you have any questions about what this decision means for you, feel free to contact Addisons’ dispute resolution team.