The following story is a mainly copied from information published in Chimes in Exile forum http://www.delphi.com/chimes/messages/ under “Why his smart arse tactics backfired”.

Stephen Matthews is in gaol because he wanted to make a point, he misjudged the difficulties of working within the legal system as a neophyte, he made some fundamental mistakes in his defense and on another level he annoyed the judge and ASIC by his manner and approach. Unfortunately the issues he raised are important and should be resolved but they are being clouded by his personality, his past history and that he considers bad ASIC regulations a nonsense.

Why Stephen Matthews Was In Court In The First Place

SLM was in court because the ASIC said he was giving investment advice without a license. This was caused by SLM posting a year old report on CSY on the Chimes Forum he ran. As soon as he found out the mistake he removed the posting. In the meantime some of the readers of the forum bought CSY only to subsequently lose a few dollars. Those readers complained to the ASIC.

There was no evidence of SLM profiting from the mistake so ASIC charged him with being an unlicensed investment adviser.

The judge couldn’t make up his mind about the case and so told SLM to stop publishing Chimes.

His Mistakes

In his defense of the original court case where ASIC told him to stop publishing the Chimes Forum he tried the section 6 exemption (being a media outlet) but then fell into a trap by admitting he was also covered by section 7 (media that only deal in securities reports).

He made two mistakes

1) He went in without a lawyer and tried to push the ‘internet is different’ line which cut no ice with anybody.

2) He evidently published some report on CSY that was a year out of date but he put a current date on it and the Chimeareans ramped the hell out of it and then dropped it when he published a correction.

That is what killed him. The ASIC argued that when a report he published that appears no where else causes large price movements and hence he must have been advising.

All cute legal interpretations aside, the judge went:

Hmm your report on CSY was wrong and it caused large price movement, someone must be paying attention, therefore you aren’t an innocent little eletronic sandwhich board like you keep saying, and you have a huge ego and you are an argumentative obnoxious little man (Not a direct quote but that is the impression)

So the judge said yes you can appeal but for now stop it. He didn’t stop it but kept publishing and got a suspended conviction. He then published in another country (NZ) was bought back to court and jailed.

So Who Are The Villains In All Of This

ASIC – well they had to act because the ASX had referred it to them as several people had rung the ASX complaining about the ramping and specifically mentioning the Chimes publication. ASIC tried to stop him publishing instead of going after him for ramping the shares. The ASIC had no evidence that SLM had ramped the shares and there is NO evidence that he made more than an honest mistake. The ASIC had had dealings with SLM before where they thought he had done something wrong but were unable to prove anything.

The Courts – They gave him two chances and the publisher deliberately made an informed decision to commit Contempt of Court in a situation where the basic case was about to get thrown out due to the current Corporations Law crisis in which court can hear what. The court could have taken a different course of action – see below – which would have resolved the issue without calling into question their draconian use of the contempt of court provisions.

The Publisher – Basically he admitted he breached the law but then tried to claim the law didn’t apply to him. Then he tried to act dumb about the consequences of his actions when he was on record as stating he understood them. The publisher had a good case against the ASIC stopping him publishing and it was in the wrong court anyway. Unfortunately he got caught up in a system where people were playing by rules that in his opinion were wrong and he tried to fight the system on “common sense” instead of the letter of the law.

How could Matthews have avoided the ASIC scrutiny in the first place

Matthews could have.

1) Created a Chimes that doesn’t have a legal problem. He could have used Delphi or some other hosted site. You can post whatever you like there and ASIC can not touch you. Why?

a) because Delphi is a full media/information service so it doesn’t fall under Section 7 (only financial stuff)

b) no-one is running it as a business (except Delphi) even a not for profit one (They got the publisher on this one).

2) In his defense he could have highlighted the inequality in the policing. ie Collate a list of all of the sites in Australia like the Chimes that would fall foul of the Corp Law Sect 77 and send them to ASIC and the media. They would have to act and the resulting outcry/media attention would certainly focus attention on the issue.

What are the Issues that should be tested in Court?

The case is important and should’ve been treated seriously and Matthews should have been given a fair go.

The first issue is whether a person can give advice without being a securities adviser.

ASIC says no and refer to their guidelines.

http://www.added.com.au/companies/Articles/asicpolicy.htm .

The guidelines are ASIC’s interpretation of the Law. The Act they come under is the Corporations Law http://www.austlii.edu.au/au/legis/cth/consol_act/cl184/ The relevant section seems to be the Investment Advice Business http://www.austlii.edu.au/au/legis/cth/consol_act/cl184/s77.html

One way to read this is that ASIC is meant to police the right of people to call themselves investment advisers. The Act says little about people who give advice and are not investment advisers. The Act has the so-called media exclusion clause. The Act says in part:

“The fact that the person advises other persons about securities, or publishes securities reports, in some or all of the following circumstances shall be disregarded:

(a) in a newspaper or periodical: (i) of which the person is the proprietor or publisher; and (ii) that is generally available to the public otherwise than only on subscription;

(b) in the course of, or by means of, transmissions that: (i)the person makes by means of an information service; or (ii) are made by means of an information service that the person owns, operates or makes available; and are generally available to the public; ”

The Act talks about information services and defines them as as either

(a) a broadcasting service;

(b) an interactive or broadcast videotext or teletext service or a similar service;

(c) an online database service or a similar service; or

(d) any other prescribed service.

The intention seems to be to define publications that only deal in securities and for which people pay money as being securities advice and hence people giving it should be securities advisers. It is not the intention to stop people giving advice in different forums.

ASIC in its guidelines says that because a website is not exactly the same as any of the information services it cannot be excluded The intention of the Act is to try to stop people pretending to be licensed securities advisers when they are not. If you don’t call yourself a securities adviser and if you make people understand that you are not licensed then the Act does not seem to be breached when you give advice. It certainly isn’t if you are an information service.

Second Issue

Was the publisher in contempt of court if he continued to publish on a NZ website? Is publishing on a website in NZ different from publishing it on a website in Australia. Surely if he was doing it outside Australia it is a different situation and it could be argued that the publisher had obeyed the ruling. The judge has taken a pretty big leap in extending the laws of Australia to cover another country. If true this would have some pretty interesting consequences.

Third Issue

Contempt of court is a bad law. Regardless of the merits of this case the whole idea of contempt of court in its present form should be fought. We have the judge taking on all the roles of prosecutor, police, judge and jury. It is the only “crime” in which you can go to gaol that doesn’t have the right of trial by jury. The judge can simply say it is contempt of his court and then issue the verdict and the sentence. If it is ever used then it should be used sparingly and it should be tried in a normal manner. There should be a jury to say whether it was contempt.

The way in which this particular contempt has been applied also appears draconian. Judges often send someone off to gaol for a day so that the defendant can think about it and then get them back and say – do you want to still continue with your actions or go back to gaol. SLM has gone to gaol for three months and his wife and several children are left with little support.

On Monday 29th May two union officials were found in contempt of court. They were not gaoled, They were fined but immediately said they were not paying the fine. Their contempt was much more blatant and yet different rules apply. Matthews does not have much support because his situation is divorced from most peoples lives. Matthews showed disrespect for the law rather than contempt.

Fourth Issue

Government bodies like ASIC have a duty to make sure their guidelines are OK with the law. They should support Matthews in his case (in much the same way the ATO does with contentious cases) so that their interpretation of the law can be tested. It is not right that private citizens have to pay to fix up bad regulations.

How to resolve the Problem

The judge should immediately release Matthews and allow him to publish in NZ while the matter is resolved. ASIC should pay for Matthews defense so that the rules interpretation can be worked out and also whether the court has jurisdiction over a person running a NZ website.

Peter Fray

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