Broker-Dealer Fined for Failing to Review Posts Made by Paid Influencers

A broker-dealer settled FINRA charges for violations related to the firm's use of social media influencers to promote services to Brazilian retail investors. 

According to the AWC, the firm (i) allowed paid influencers to make posts on social media that involved unfair, promissory or misleading claims; and (ii) failed to review such posts prior to their posting. FINRA said the firm provides self-directed trading through its online portal, primarily to retail customers who are Brazilian residents looking to invest in US securities. FINRA found that the firm paid 25 influencers, all based in Brazil, to promote the firm and its affiliated companies on social media. FINRA found that the influencers were provided with a unique referral link, which allowed the firm to track the number of accounts opened by customers using the unique link. FINRA further found that customers opened and funded more than 19,000 new accounts using the unique referral links that were provided to the influencers.

FINRA found that the posts were "not fair and balanced or contained claims that were promissory or misleading." Specifically, FINRA found:

• In one video, an influencer stated, "they pay, yes, every month. It always pays a dividend." Other posts similarly suggested that investments guarantee dividend income without disclosing risks.
• Influencers promoted investment in US markets, with one influencer stating, "If you pray in English, your blessings come in dollar ... And if you invest in the best stock exchange in the world, the returns too!" 
• Influencers used hashtags, "such as #GetRich, #Millionaire, or #ExtraIncome, that suggested investors would get wealthy or earn money from their investments."
• Several posts promoted specific registered ETFs without including information and disclosures required by Securities Act Rule 482 ("Advertising by an investment company as satisfying requirements of section 10"). 
• Some posts encouraged potential investors to purchase crypto assets but did not clearly explain the risks of the investment.
• Some influencers described the firm's services as "free," "completely free of charge," or "zero fee" without disclosing that certain fees may apply.

FINRA found that the firm did not have a registered principal approve influencers' posts promoting the firm, nor did the firm maintain records of influencer communications or the dates the communications were used. FINRA also found that the firm also did not have WSPs designed to supervise retail communications posted by influencers.

As a result, FINRA determined that the firm violated FINRA Rules 2210 ("Communications with the Public"), 3110 ("Supervision"), 4511 ("General Requirements") and 2010 ("Standards of Commercial Honor and Principles of Trade"); as well as SEA Section 17(a) ("Records and Reports") and Rule 17a-4 ("Records to be preserved by certain exchange members, brokers and dealers"). 

To settle the charges, the firm agreed to (i) a censure, (ii) pay a $300,000 fine and (iii) an undertaking to remediate the issues identified in the AWC.