(ASX) Wolf in sheep’s clothing – a finfluencer tale of caution

By

30 January 2023

The rise of the finfluencer

The role of the Australian Securities and Investment Commission (ASIC) as financial services regulator is constantly challenged by the evolution of the digital landscape.

The digital revolution continues to change the financial services industry at an unprecedented rate. Fintech (financial technology) has fuelled the development of a wide range of new digital financial products and services. The number of clients that use digital channels to access financial advice has increased dramatically, especially since the pandemic.¹

Social media influencer engagement also increased as a result of COVID.² The collision of influencers, fintech and “Generation Z” has given rise to the inevitable and dangerous advent of the “finfluencer”.³

The World Economic Forum has recently reported that Gen Z are almost five times more likely to get financial advice from social media platforms than people aged 41 or over.⁴ Gen Z represents a new generation of investors, who operate “at the intersection of technology and financial anxiety”, with a significant degree of tech savvy, combined with a lack of trust in old-school financial institutions—a trend illustrated by the follower counts of finfluencers contrasted with those of Fidelity or Blackrock, which attract only modest numbers of followers.⁵

ASIC has been paying close attention.

ASIC’s warning

Recently, ASIC released Information sheet 269 for finfluencers, providing a warning of the need to operate within the law. The information sheet provides guidance on three key areas; appropriate licensing for financial service providers, misleading and deceptive material, and manipulation and interference with fair market operation.⁶

ASIC urged those providing financial services advice to be properly licensed and inform themselves of the rules around providing financial advice on social media platforms.

The information sheet is both a guide and a warning for finfluencers. It puts them on notice that: this is broadly what you need to know, make sure you are operating within the law, seek legal advice if you are unsure, and beware – because ASIC is watching.

Our article, “ASIC issues ultimate ‘challenge’ to influencers”, addresses the information sheet in more detail and concludes with the following prophetic warning:

Content creators on TikTok, Instagram and other platforms, and anyone who sponsors them or their USG, should be aware that one of their many viewers may be an ASIC investigator checking to see whether content spruiking financial products or services is in breach of the law.

However, it was already too late for Tyson “ASX Wolf” Scholz, who had, by then, already engaged in unlawful conduct.

The “ASX Wolf”

Tyson Scholz is a Lamborghini-driving, private jet-flying, share trading finfluencer who the Federal Court of Australia recently found to be in breach of the Corporations Act 2001 (Cth) (Corporations Act).⁷

His case represents the epitome of the conduct that ASIC’s Information sheet is directed at.

What did Mr Scholz Do?

Mr Scholz’s business started on Instagram, under the username “asxwolf_ts”. He adopted the corresponding online and trading persona of the “ASX wolf”;⁸ presumably a reference to Jordan Belfort, the (also self-proclaimed) “Wolf of Wall Street”. If so, his choice of penname was somewhat foreboding. Mr Belfort was not known for shrewd financial decisions or stock picks, but for his fraud and stock-market manipulation.⁹

Mr Scholz would make positive social media posts promoting a stock, often indicating that he had purchased them himself.¹⁰ The likely consequence of these posts was that his followers would acquire the promoted stocks thereby increasing the price of the shares.¹¹ Mr Scholz argued that because he was not charging his followers, he could “get away with it”.

He didn’t.¹²

Mr Scholz’s business later expanded to selling “stock tips” for $500¹³ and to running $500 seminars, promoted on his Instagram page as teaching attendees how to trade on the ASX, and described by Mr Scholz as “Stage 1”.¹⁴ Attendees were then encouraged to progress to “Stage 2”, which involved an online message group where more stock tips were exchanged, entrance to which costed $1,000 a year.¹⁵ The business then promoted “Stage 3”, a purported “Master Class Technical” investment stage, but little is known about this stage.¹⁶

Throughout this period, Mr Scholz posted extensively about his lavish lifestyle, implying that it was a consequence of his trading prowess (lifestyle posts).¹⁷

What laws did he break?

Section 911A(1) of the Corporations Act requires any person who carries on a “financial service business” to hold an ‘Australian financial services licence’ covering the provision of “financial services”.

As Mr Scholz did not hold the required licence and was carrying on a business, the central issue for the Court to determine was whether Mr Scholz carried on a financial service business.

That question was assessed by determining, firstly, whether he provided a financial service (he did) and, secondly, whether this financial service constituted a business (it did).

Australian Financial Services Licences

An Australian Financial Services Licence (AFSL) is a licence that authorises a person and their representatives to provide financial services to clients.

A person must have an AFSL to provide financial services in Australia as part of a business, unless they are exempt or they provide financial services as an authorised representative of an Australian financial services licensee.

Providing financial services as part of a business without an AFSL is an offence under section 1311(1) of the Corporations Act.

Financial Services

Relevantly, for the purpose of this article, a “financial service” is provided by a person if they “provide financial product advice”.¹⁸

Financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:

(a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or

(b) could reasonably be regarded as being intended to have such an influence.

More concisely, a “financial service” includes a recommendation or statement of opinion that is intended to influence a person to make a decision in relation to a particular financial product.

The Court found that Mr Scholz’s Instagram posts, seminars and online chat forum all constituted financial product advice because he expressed opinions about specific companies and because, when viewed in the context of the lifestyle posts and each other, there was a clear intention to influence his audience.¹⁹

Accordingly, Mr Scholz was found to have provided financial advice, and thus provided a financial service for the purposes of the Corporations Act.

Financial Service Business

A financial services business is a business providing financial services: section 761A Corporations Act.

Given that Mr Scholz’s conduct constituted a financial service, the Court turned their attention to whether the relevant conduct constituted a business. The Court observed that much of his conduct corresponded to features of a commercial enterprise, specifically citing his wolf branding, the cultivation of his self-image as a successful trader and the way the business was promoted in stages.²⁰

“The overall operations were continuous and systematic; the transactions engaged by Mr Scholz were commercial in nature, and there was a profit making purpose.”²¹

It should be unsurprising that the Court found that Mr Scholz carried on a financial services business in the circumstances.

Accordingly, the Federal Court found social media “finfluencer” Tyson Scholz contravened s911A of the Corporations Act by carrying on a financial service business (between March 2020 and November 2021) without an AFSL.

It should be noted that it does not matter if only one part of the business is comprised of providing financial services. That is because s 19 Corporations Act provides that:

A reference to a business of a particular kind includes a reference to a business of that kind that is part of, or is carried on in conjunction with, any other business.

The penalties that Mr Scholz will face will be determined at a later date.

Key takeaways

We repeat the warning included in our previous article. Current and budding finfluencers, beware: ASIC is watching! ASIC deputy chair Sarah Court has made clear that more finfluencers will be the subject of enforcement action if they offer financial services without a licence.²²

Anyone seeking to publish financial content on social media, or anywhere else, should keep the following in mind:

• The definition of financial services is broad and includes providing financial product advice.
• Financial advice does not require specifically recommending that a certain product should or should not be bought.
• A financial service can be provided without charge, especially when a social media post has the power to influence the market.

Although the Court was not required to consider this issue in the ASX Wolf case, it is the writer’s opinion that the monetisation of social media influencers puts successful finfluencers that do not hold an AFSL at considerable risk. A finfluencer who generates income from posts addressing certain stock or other financial products may still arguably be operating a “business” (irrespective of whether they charge directly for advice or services) that provides financial services. Without an AFSL, such posts may breach the Corporations Act.

Finally, we suggest finfluencers contemplating a username with the prefix or suffix “wolf” should consider an alternative.

1. The Evolution of Financial Services in the Digital Age  Angela C. Lyons, University of Illinois, Josephine Kass-Hanna, Saint Joseph University of Beirut, 24 June, 2021: https://www.researchgate.net/publication/352711903_The_Evolution_of_Financial_Services_in_the_Digital_Age
2. Is COVID Making Marketing Influencers More Influential? Charles Taylor, Forbes.com: https://www.forbes.com/sites/charlesrtaylor/2020/07/30/is-covid-making-marketing-influencers-more-influential/?sh=23f88e644200
3. Although the definition of this term varies, ASIC’s focus is directed on social media influencers who discuss financial products and services online, which is the meaning this article ascribes to the term “finfluencer”.
4. This is where Gen Z goes for financial advice, Tim Tkachenko23 August 2022,  https://www.weforum.org/agenda/2022/08/finfluencer-gen-z-financial-advice/
5. Ibid
6. D Stewart, TT Htin, F Sharbanee, ‘ASIC issues ultimate ‘challenge’ to influencers’, Bennett (Article, 22/12/2022) <https://bennettlaw.com.au/asic-issues-ultimate-challenge-to-influencers/>
7. Australian Securities and Investments Commission v Scholz (No 2) [2022] FCA 1542 (ASIC v Scholz)
8. ASIC v Scholz [4]
9. <https://en.wikipedia.org/wiki/Jordan_Belfort>.
10. ASIC v Scholz [132]
11. ASIC v Scholz [3]
12. ASIC v Scholz [3]
13. ASIC v Scholz [5]
14. ASIC v Scholz [8]
15. ASIC v Scholz [8] – [11]
16. ASIC v Scholz [12]
17. ASIC v Scholz [73]
18. Section 766A(1)(a) of the Corporations Act 
19. ASIC v Scholz [38] – [40]
20. ASIC v Scholz [40] – [41], [149] – [150]
21. ASIC v Scholz [40] – [41], [149]
22. See: ASIC Media Release 22-371MR: Federal Court makes findings against social media ‘finfluencer’ Tyson Scholz

Disclaimer: The information published in this article is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.