By Dah-In Yeh & Li-Chi Yeh, Founding Partner and Senior Associate of Formosan Brothers, Attorneys-at-Law

Taiwan’s stock market has been hitting new highs since 2020. The hotness of the stock market not only shows in the number of new securities accounts opened, but also in the lowering of stock investors’ age range. Securities investment gradually becomes one of the financial management tools of the new generation. Veteran investors, having survived in the stock market, have their own investment principles and views. Through social media, they share their views with novice investors who has less experience or time to spend on investing. This new way replaces the “securities investment consultant on TV as known as teacher for investing” as the sources of information and investment strategies for retail investors. By sharing investment analysis or market outlook through all types of social media, these “investing influencers” have become the key opinion leader under the secutities investment trend. Their influence can be seen from the GameStop short squeeze that occurred in January of 2021 in the US stock market.

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In January, 2021, due to their pessimistic view of GameStop’s prospect, some hedge funds started shorting (i.e. borrows shares and sells them immediately, hoping to buy them back at a lower price and profit off the difference) GameStop stocks. Retail investors in the subreddit r/wallstreetbets (“WSB”), an online community on the social news website Reddit, initiated a short squeeze (i.e., hyping up the stock price to force the short seller to buy back the stock at a high price) of GameStop through WSB. Such a move pushed the price of the stock from US$39.91 per share on January 14 to almost $100. And after a tweet from Tesla founder Elon Musk, the price went even higher to over US$200. Up until January 28, the stock price of GameStop has hit as high as US$483.  

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Keith Gill, a 34 year-old financial analyst, is thought to be the person behind this epic short squeeze. In addition to rallying for the short squeeze on WSB, he also shared his own investment thoughts on social media such as YouTube under the name “Roaring Kitty.” This short squeeze of GameStop caused large losses for short-selling hedge funds, and also gained the attention of the US Securities Exchange Commission (SEC). After the incident, the stock price of GameStop quickly fell from the peak in February to below US$100. Keith Gill, the “investing influencer” who is thought to be the instigator, was not only asked by the U.S. House Financial Services Committee to explain his role in this incident, but also was sued by some investors, accusing him of manipulating the market by pretending to be a retail investor, which is a violation of the U.S. securities exchange laws and resulted in material damage to investors. Suits and investigations which Keith Gill is facing are still ongoing. He may have gained greater presence on the Internet, but he also put himself into the risk of civil or criminal liability.

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In Taiwan, there are quite a few investing influencers who share investment analysis or thoughts on platforms such as YouTube, Podcast, or Line group. When sharing on social media, they should pay attention to the provisions in the Securities and Exchange Act and the Securities Investment Trust and Consulting Act (hereinafter the “Investment Trust and Consulting Act”) to avoid crossing the line and ending up doing more harm than good:

1. Influencers are prohibited from receiving compensation or charging fees under disguised names
According to Article 4 of the Investment Trust and Consulting Act, the term "securities investment consulting" means providing analysis, opinions, or recommendations on matters relating to investment in or trading of securities, securities-related products, or other items approved by the Competent Authority, in return for compensation obtained directly or indirectly from a principal or third party. Hence, regardless such analysis, opinions, or recommendations come from his/her own or others, as long as compensation is obtained directly or indirectly because such analysis, opinions, or recommendations are provided, it is a violation against the Investment Trust and Consulting Act and is subject to criminal liability of less than five years in addition to civil liability. In practice, there was a case where the defendant who, through a Line group chat “Stock Market Preschool,” informed the group members the names of the stocks worth investing and the times and prices for buying and selling the stocks. The defendant was found by the court to have “provided recommendations” and collected membership fees, report fees, or bonuses. At the end, the defendant was sentenced for violating Article 107 of the Investment Trust and Consulting Act. (Taiwan High Court criminal judgment 109-Jin-Shang-Su-Zi No. 60)

2. The information to be quoted should be accurate when sharing and manipulation of stock prices is prohibited.
According to Judicial Yuan’s interpretation Shi-Zi No. 634, the purpose of the requirement for an enterprise which conducting business activities of securities investment consulting to obtain approval from the competent authority is to establish professionalism for the securities investment consulting enterprises. Those who conduct the business of holding or providing securities investment-related lectures or courses are to do so with a view to provide general securities investment information and are not to conduct such business with a view to furnish, directly or indirectly, valuation analyses, recommendations or advice on individual securities shall not be subject to the restrictions. It can be shared without concerns of violating the law. However, the information to be quoted shall be accurate when sharing. Also, one shall not advocate or persuade others to conduct stock trades by using his/her own influence on social media. Pursuant to Article 155 of the Securities and Exchange Act, to perform directly or indirectly any other manipulative acts to influence the trading prices of securities or to spread rumors or false information with the intent to influence the trading prices of designated securities are all violations of the Securities and Exchange Act, and shall be subject to no less than three years and no more than ten years of sentence and be held liable for civil damages.

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The heat in the Taiwan stock market brought about an investment frenzy. Sharing of investment experience and results on social media also helped influencers and opinion leaders gain loyal fans and audience. These influencers are able to make a profit from non-investors by endorsing merchandise. When they share their content, they need to emphasize over and over again that they are sharing “personal opinions” and “are not analyzing or recommending specific stocks.” Keith Gill in the GameStop short squeeze is a lesson for all investing influencers. When sharing personal investment analysis or opinions, one still needs to pay attention to laws and regulations such as the Investment Trust and Consulting Act and the Securities and Exchange Act to avoid violations and possible criminal and civil liabilities.

(This article was published in the Expert’s Commentary Column of the Commercial Times：https://view.ctee.com.tw/tax/31206.html）

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