Financial regulators, watchdogs and the law are rapidly catching up to social media's potential impact on financial markets and their participants.
When ASIC released Information Sheet 269 in March 2022, it appeared that social media influencers, and those who use them to market their financial products and services, were in the corporate watchdog's crosshairs.
Narrowly speaking, Information Sheet 269 reemphasised existing law on social media influencers operating in the financial services industry, so-called 'finfluencers'.
However, bigger picture wise, ASIC's guidance also demonstrated social media's potential to cross the line in diverse ways, which has now been underscored by several high profile cases.
In December 2021, ASIC took the unprecedented action of seeking (and obtaining) orders restraining sharemarket trader, Tyson Scholz, from promoting or carrying on any financial services business in Australia.
ASIC alleged Scholz was carrying on a financial services business without holding an Australian financial services licence by delivering training courses about trading securities on ASX.
Scholz allegedly promoted these courses on Twitter and Instagram under the handle '@ASXWOLF_TS'.
This example shows that ASIC's interpretation of the law detailed in Information Sheet 269 applies more broadly than to self-styled 'finfluencers', but also to anyone with a social media platform sharing financial information.
The ongoing defamation case brought by mining entrepreneur, Tolga Kumova, against Twitter user Alan Davison, better known by his Twitter handle "Stock Swami", similarly demonstrates the legal headaches that can be caused from social media use.
Kumova claims he was defamed by tweets made by Davison between 2019 and 2020.
Davison has pleaded truth as a defence against Kumova's claim, meaning that a cavalcade of Kumova's past actions, texts and conversations, as well as those of various friends and associates, including directors, have been examined by the Federal Court of Australia and livestreamed across the internet.
The Court's fact finding mission has drawn into focus several collateral legal issues, including continuous disclosure obligations arising from the questioning of what certain people knew and when they knew it, compliance with cleansing obligations and various aspects of the insider trading provisions.
This leaves a pertinent warning that no carve-out or confidentiality agreement can defy a court order, meaning that certain information may eventually surface (including in the most public and unusual of ways).
Continuous disclosure issues also arise in other circumstances.
ASX Listing Rules and Corporations Act continuous disclosure laws were in part designed to limit brokers and others at the coalface of financial markets having an inside edge.
However, new forms of social media have increased the risk of the control of information being wrestled away from board and management.
For instance, an ASX-listed company was recently questioned by ASX regarding a director discussing a confidential transaction on a podcast. The transaction was not disclosed on the company's ASX platform at that time. The podcast was allegedly published without the company's authorisation, but the fact that a third party publisher can inadvertently distribute confidential information indicates the traditional information safeguards may be weakening.
This highlights the need for board members of ASX-listed companies to have detailed knowledge of the applicable continuous disclosure regime, including the difference between not releasing information because it is not price sensitive, and not releasing information because although it is price sensitive, a relevant carve-out to the disclosure obligation exists.
Other high profile cases have highlighted the permanent bread trail involved in social media-led market manipulation schemes.
In June 2022, ASIC announced that share trader Gabriel Govinda (known online as 'Fibonarchery') pleaded guilty to 23 charges of manipulation of ASX-listed stocks and 19 charges of illegal dissemination of information relating to information between 2014 and 2015.
One of his posts on share trader chat platform HotCopper included: "dummy bids are all part of the fun and games and cat and mouse of the stock market!".
ASIC has previously warned about social media-led 'pump and dump' campaigns.
Last year ASIC joined a Telegram chat room titled "Pump and Dump Organization" with some-288 users and stated "…We can see all trades and access to trader identities…You run the risk of a criminal record, including fines or more than $1M and prison time by being involved."
The illegality of these schemes may be lost in the exuberance of a group thread filled with diamond hand, rocket ship and moon emojis.
The Telegram chat and Govinda cases illustrate that what people say and do online matters, and often there is a permanent paper trail.
Thomson Geer's corporate lawyers across Australia have considered these developments and identified three key reminders for those in the financial sector:
- Social media activity that creates legal issues in one area can draw attention to legal issues in another, which may expose third parties to potential actions. Financial market participants should be aware that what they say and do could be scrutinised in the future regardless of confidentiality obligations and applicable carve-outs.
- With social media's increased proliferation, more people have access to potentially confidential information than ever before. Listed companies should adjust their information controls accordingly and ensure that directors and management are aware of their disclosure (and non-disclosure) obligations and how relayed information could be used.
- Once content is posted online, it's often permanent. That means that online publications may be read and interpreted afterward in a way that was not intended when they were made.
