FINRA Fines Firm for Failing to Review Paid Influencer Posts on Social Media
Commentary by Sebastian Souchet
A firm settled FINRA charges for compensating influencers who posted misleading and promissory content on social media.
According to the AWC, the firm paid approximately 400 influencers to promote the firm on social media platforms. FINRA said misleading claims included a video in which an influencer stated: "If you use my [] link to sign up [] and start trading . . . you can make a ton of money," and another that promised viewers a way to "collect $500 every single month on average" through specific securities investments. FINRA found that some influencers claimed the firm offered "zero commission trading" without disclosing potential fees, and misleadingly suggested that customer funds were safe, stating, "[t]hey are secured by SEC and FINRA, so your money is protected."
FINRA also found that the firm failed to review or approve influencers' static content prior to posting and did not supervise interactive social media communications. In addition, FINRA found that the firm failed to retain records of influencers' posts or document supervisory reviews and failed to provide initial and annual privacy notices to firm customers.
As a result, FINRA charged the firm with violations of FINRA Rules 2210 ("Communications with the Public"), 3110 ("Supervision"), 2010 ("Standards of Commercial Honor and Principles of Trade"), 2220 ("Options Communications") and 4511 ("General Requirements"); Securities Exchange Act Section 17(a) ("Records and Reports") and Exchange Act Rule 17a-4(b)(4) ("Records to be preserved by certain exchange members, brokers and dealers"); and Regulation S-P Rules 4 ("Initial privacy notice to consumers required") and 5 ("Annual privacy notice to customers required").
To settle the charges, the firm agreed to (i) a censure, (ii) a $750,000 fine and (iii) remediation including implementing a supervisory system and providing certification of compliance by senior management.
Commentary
Broker-dealers should closely review this enforcement action as it serves as a clear reminder of how FINRA rules governing communications with the public can apply to the use of social media influencers and certain third-party communications.
While the enforcement action specifically states that the firm "paid [social media influencers] to promote the firm in social media communications," firms should be aware that third parties' social media posts constitute communications with the public subject to FINRA Rule 2210, where a firm either (i) paid for, or was involved in, the preparation of the content of the post (i.e., where FINRA deems the firm or its personnel to be "entangled" with the third-party post) or (ii) endorsed or approved the content of the post, either implicitly or explicitly (i.e., where FINRA deems the firm or its personnel to have "adopted" the content of the third-party post). Accordingly, firms should, among other things, have qualified personnel review and approve such posts to ensure compliance with the requirements of FINRA Rule 2210 (including the content requirements therein).
Firms should also be aware that in addition to the requirements of FINRA Rule 2210, communications with the public on social media sites, including posts by third parties, may be subject to recordkeeping, supervision and suitability requirements under FINRA and SEC rules.