FINRA Sanctions Firm Over Unsupervised Influencer Marketing

A firm settled FINRA charges for failing to adequately supervise influencer social media communications and maintain required records. 

According to the AWC, the firm "paid 110 individuals" to promote its platform on social media, compensating them either per promotional post or for each new account opened through unique referral links supplied by the firm. FINRA said the firm provided influencers with a welcome email and a "Content Creator Kit" that included examples of "great pieces [for] content created about" the firm, along with "key talking points," such as the firm's app is "free to use and there are $0 commission fees on standard trades." FINRA found that influencer content drove significant activity for the firm, resulting in "customers open[ing] and fund[ing] more than 23,000 new accounts ... using the unique referral links."

FINRA concluded that some influencer posts were "not fair and balanced" or included "misleading or unwarranted" claims. FINRA noted that influencers promoted "commission free trades" without disclosing that other fees may apply or providing a link to the firm’s fee schedule. FINRA found that influencers also encouraged fractional share trading without disclosing that such shares "may not be transferable to another broker-dealer," and failed to clearly identify their posts as paid advertisements.

FINRA determined that the firm failed to have a "registered principal approve" all influencer-created "static posts promoting the firm" before they were published on social media and also did not retain copies of all promotional posts or maintain records identifying the approving principal and the "date of approval."

FINRA also found that the firm failed to establish a supervisory system, including written supervisory procedures, reasonably designed "to supervise [influencer-created] retail communications." FINRA found that the firm's supervisory system was not "reasonably designed to preserve records related to the influencers’ communications."

The firm settled FINRA charges for violations of Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 2210 ("Communications with the Public"), 3110 ("Supervision") and 4511 ("General Requirements"); and Exchange Act 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 $350,000 fine, and (iii) a written certification, from a senior management member, within 60 days confirming the firm has remediated the issues identified in the AWC and implemented an adequate supervisory system.