FINRA settles first finfluencer case

In its first case arising from a review of brokerage firms’ use of social media influencers, the U.S. Financial Industry Regulatory Authority Inc. (FINRA) has sanctioned a firm over online posts made on a firm’s behalf.

FINRA fined M1 Finance LLC for allegedly violating the self-regulatory organization’s rules regarding communications with the public.

The firm settled the case without admitting or denying the charges. M1 Finance consented to the entry of FINRA’s findings, paid a US$850,000 penalty, and agreed to certify that it has remediated the issues and implemented a supervisory system to ensure compliance with the SRO’s requirements.

The case, which represents FINRA’s first disciplinary action involving a firm’s supervision of social media influencers, came to light through a targeted compliance exam of firms’ efforts to prospect for customers through social media channels.

According to the SRO, M1 Finance paid social media influencers to post content between January 2020 and April 2023, promoting the firm by offering a flat fee for every new account that was opened and funded by an investor generated by their posts.

During the period, more than 39,400 new accounts were opened and approximately 1,700 influencers worked on the firm’s behalf.

However, FINRA alleged the firm failed to review or approve the influencers’ posts before they were posted, in violation of the SRO’s rules.

Further, certain social media posts made by M1 Finance influencers included false statements, the regulator alleged, such as about the terms of M1’s margin lending program.

“As investors increasingly use social media to inform their financial decisions, FINRA’s rules on communicating with the public are especially critical. 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,” said Bill St. Louis, executive vice-president and head of enforcement at FINRA, in a release.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.