On March 18, 2024, FINRA announced that it has fined a broker-dealer $850,000 in connection with the firm’s program to pay individuals with followings on social media sites (i.e., “influencers”) to promote the firm in social media communications. This matter represents FINRA’s first disciplinary action involving a firm’s supervision of social media influencers.
FINRA found that the broker-dealer’s influencers posted on the firm’s behalf communications that were not fair or balanced, or made claims that were exaggerated, unwarranted, promissory, or misleading, in violation of FINRA Rules 2210(d)(1) and 2010. For example, the firm’s influencers posted communications claiming that the firm’s services were completely free without disclosing that certain fees may apply.
Additionally, the firm did not have a registered principal review or approve the content in the influencers’ communications prior to their posting on social media platforms, did not maintain records of these communications, and failed to establish, maintain, and enforce a reasonably designed supervisory system (including written supervisory procedures) for communications disseminated on the firm’s behalf by such influencers. In this connection, the firm violated Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-4(b)(4) thereunder, and FINRA Rules 2210(b), 4511, 3110, and 2010.
In the press release announcing this disciplinary action, FINRA’s Executive Vice President and Head of Enforcement, Bill St. Louis, stated that “FINRA will continue to consider whether firms are using practices and maintaining supervisory systems that are reasonably designed to address the risks related to social media influencer programs.” The press release also noted that this action stems from FINRA’s targeted exam of broker-dealer practices related to the acquisition of customers through social media channels, including firms’ use of social media influencer and referral programs, which was initially announced in September 2021 and was the subject of an update by FINRA in February 2023. In light of these statements from FINRA and its ongoing targeted exam, more disciplinary actions involving broker-dealers’ social media influencer programs seem likely.
It appears that the Securities and Exchange Commission’s (“SEC”) enforcement program is becoming active with regards to the use of social media influencer programs in the securities industry, beyond the context of broker-dealers. For example, in February 2023, the SEC announced that a registered investment adviser agreed to pay a $1.75 million civil penalty to settle charges that it failed to disclose a social media influencer’s role in the launch of its new exchange-traded fund. Given the intensifying regulatory focus of the SEC and FINRA on the use of social media influencers in the securities industry, broker-dealers and other market participants should closely review their social media influencer programs and assess compliance with applicable regulatory requirements and expectations.
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