Australian Securities and Investments Commission v Scholz [2023] FCA 337 | Case summary

DOWNES J: 1 In this proceeding, the Australian Securities and Investments Commission (ASIC) alleged that, contrary to s 911A of the Corporations Act 2001 (Cth), the defendant, Mr Tyson Scholz, carried on a financial services business between at least early 2020 and November 2021 without an Australian Financial Services Licence. 2 By order dated 7 June 2022, the question of liability in the proceedings was ordered to be heard separately from the question of relief. A trial on the question of liability was held from 4 to 7 October 2022 and judgment was delivered following that trial on 20 December 2022: Australian Securities and Investments Commission v Scholz (No 2) [2022] FCA 1542. 3 Today's hearing related to the question of relief. ASIC sought relief in terms of a draft order, which was handed up during the course of the hearing. By paragraph 1, the draft sought an order restraining the defendant pursuant to ss 1101B(4) and 1324(1) of the Corporations Act from: (a) obtaining payment or other benefit for the provision of financial product advice (within the meaning of s 766B(1) of the Act) without an Australian Financial Services Licence; (b) hosting online groups for which a membership fee is charged, and in which messages are exchanged by members about share trades (either in a group chat or through direct messages from the defendant), without an Australian Financial Services Licence; (c) carrying on a financial services business in Australia in contravention of s 911A of the Act. 4 The terms of subparagraph 1(a) of the draft order were modified by ASIC during the course of oral submissions to include additional words. It was proposed that the additional words "conducting a business of" be inserted before the words "obtaining payment or other benefit" and the additional words "unless an exemption in s 911A(2) of the Act applies" be inserted at the conclusion. 5 Before turning to the relief sought by ASIC at today's hearing, it was agreed between the parties that an order should be made which vacates another order which I made on 16 December 2021 pursuant to which, in effect, Mr Scholz agreed to a form of interlocutory injunction. Because the parties are agreed that that order should be vacated and because it is appropriate that it be vacated, I will make that order. 6 Turning then to ASIC's draft order, there is no opposition to the relief sought in subparagraphs (1)(b) and (1)(c) of that draft. I will make those orders pursuant to s 1101B(1) rather than s 1101B(4) of the Corporations Act, but otherwise subparagraphs (1)(b) and (1)(c) of the draft will not be changed. 7 The primary reasons for making these orders are that they are not opposed by Mr Scholz, they flow from the findings in my decision handed down on 20 December 2022 and the making of these orders will not unfairly prejudice any person within the meaning of s 1101B(1) of the Corporations Act. I should also indicate that, while it is not usual to make an order which effectively requires a person to comply with the law, this is an appropriate case for the making of an order of the kind proposed in (1)(c) of the draft having regard to the conduct of Mr Scholz as reflected in my liability judgment. 8 I turn then to the proposed order contained in subparagraph (1)(a). 9 During oral argument, I reserved the question of whether a further affidavit filed by ASIC on 24 March 2023 should be admitted into evidence. The admission of that affidavit was objected to by Mr Scholz. 10 That affidavit exhibited a copy of a screenshot which showed that Mr Scholz was still operating an Instagram account with the tag "asxwolf" and that, on his Instagram page, the following was stated under his name: ~ Global Equity Trader ~ Market Leading Education Learn to TRADE Courses ~ ~ Teaching the world to Develop & Scale up DM NOW 11 I accept the submission by Mr Dick SC, who appeared for Mr Scholz, that this evidence is not relevant to the issues which are being addressed today. That is because Mr Scholz may well be a "global equity trader". And the fact that he operates learn-to-trade courses may or may not fall foul of the Corporations Act. As to his "teaching the world to develop & scale up", to the extent that one can ascribe any meaning to those words, again, it does not seem to add to ASIC's case or demonstrate that Mr Scholz is breaching the Corporations Act. 12 In any event, today's hearing is a hearing about relief following the hearing on liability culminating in the judgment delivered in December 2022. 13 In those circumstances, I will not admit the affidavit into evidence. 14 In terms of whether it is appropriate to make the order sought in subparagraph (1)(a), I will not make that order for the following reasons: (1) an order of that kind was not sought by ASIC in any version of its originating process, noting that ASIC provided three versions of an originating process, including one during or just prior to the trial itself and which modified the terms of the injunction sought against Mr Scholz. Each of the versions of the originating process provided by ASIC tied the injunction sought by it to what was defined as "Business", which meant all activities and arrangements where the defendant, whether by himself or by his servants, agents or employees, provided recommendations or statements of opinions about the purchase of shares in return for payments of money or other benefits without an Australian Financial Services Licence (defined as AFSL) or being a representative of a holder of an AFSL or otherwise being authorised under the Corporations Act. The restraints sought in the originating processes were by reference to the Business. That is, the conduct sought to be restrained was conduct such as promoting or carrying on the Business; doing any act in furtherance of or in connection with the Business; receiving, soliciting, transferring or disposing of customer funds received in connection with the Business, and so on. (2) more importantly, a second reason for not making the order in (1)(a) is that, on its face, it is duplicative of what appears in (1)(c). That is, it is unclear what it adds to the proposed restraint in (1)(c). In its original form, 1(a) did not appear to be unlawful conduct; that is, simply obtaining payment or other benefit for the provision of financial product advice without an Australian Financial Services Licence is not, apparently, unlawful. Ms Callan SC, who appeared for ASIC, did not identify the provision of the Corporations Act which meant that it was. In any event, even if there had been such a provision, that was not the case which Mr Scholz came to meet in this proceeding. As I indicated at the start of these reasons, Mr Scholz came to meet a case alleged against him that he was carrying on a financial services business. That conduct is the subject of the injunction that is contained in (1)(c) of the draft order. 15 For these reasons, I will make the order which vacates the order of 16 December 2021, as I have already indicated. I will also make the order in terms of paragraph (1)(b) and (c) but with a modification of the identified section of the Corporations Act, as I have also indicated. 16 I then turn to the issue of costs. ASIC seeks its costs on the basis that it has been successful and therefore costs should follow the event. Mr Scholz opposes costs being ordered against him. His primary position is that each party should bear their own costs. Failing that, it was submitted by him that there should be some reduction in the costs awarded against him, taking into account that he had some success in relation to issues connected with the Instagram account and the seminars, having regard to the exemption available under the Corporations Act (being s 911A(2)(eb)). 17 However, as was canvassed with counsel during oral submissions and without any criticism, because he was entitled to act as he did, a substantial part of the liability hearing was occupied with objections to evidence which were taken by Mr Scholz to evidence sought to be adduced by ASIC, including evidence that was obtained as a consequence of search warrants. Mr Scholz was almost completely unsuccessful in relation to those objections or, alternatively, resiled from those objections during closing submissions. While it is true that ASIC also changed its position in relation to certain issues between opening and closing submissions, the issues about which ASIC changed its position did not occupy a significant part of the hearing. 18 In any event, the primary issues in the case were as contained in [71] of the liability judgment, namely (1) whether Mr Scholz carried on a financial services business within the meaning of s 911A Corporations Act and (2) whether the exemption in s 911A(2)(eb) of the Corporations Act applied. 19 ASIC was successful in relation to both of those substantive issues. As a consequence, I do not consider it to be appropriate in this case to engage in a more granular analysis of which issues, whether legal or factual, were issues in relation to which Mr Scholz was successful because, in the end, he lost. He lost on the two main issues in the case, and he lost the case overall. 20 As a consequence and for these reasons, it is appropriate that Mr Scholz should pay ASIC's costs without reduction, and so I will make an order that the defendant pay the plaintiff's costs of the proceeding, in the terms as sought by ASIC. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Downes.

Australian Securities and Investments Commission v Scholz

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