FINRA announced that it has fined M1 Finance LLC $850,000 for social media posts made by influencers on the firm’s behalf that were not fair or balanced, or contained exaggerated, unwarranted, promissory or misleading claims.
This case arises from FINRA’s targeted exam of firm practices “related to the acquisition of customers through social media channels and represents the first formal FINRA Enforcement disciplinary action involving a firm’s supervision of social media influencers.”
Bill St. Louis, Executive Vice President and Head of Enforcement, FINRA, said:
“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.”
Between January 2020 and April 2023, M1 Finance allegedly had “paid social media influencers to post content promoting the firm, and instructed the influencers to include a unique hyperlink to the firm’s website that potential new customers could use to open and fund an M1 Finance brokerage account.”
M1 Finance also reportedly provided its influencers “with graphics and a ‘Welcome Guide’ that described specific services and features available through M1 Finance that influencers could highlight to make their social media posts more effective.”
The firm has allegedy “paid influencers who participated in its program a flat fee for every new account that was opened and funded by the customer using a unique link provided by M1 Finance.”
The firm is said to have “not limit compensation influencers could earn. During this period, more than 39,400 new accounts were opened and funded with the help of approximately 1,700 influencers working on the firm’s behalf.”
M1 Finance influencers made social media posts promoting the firm “that were not fair and balanced, in violation of FINRA Rules 2210 (Communications with the Public) and 2010 (Standards of Commercial Honor and Principles of Trade).”
For example, an influencer advertising M1 Finance’s margin lending program stated that customers could “pay [margin loans] back at any given time . . . there is no set time period.”
But in fact, investors who use margin “are not entitled to any extension of time to meet the firm’s margin requirements, and the firm can, without contacting such investors, increase the maintenance margin requirement on their accounts at any time, force a sale of securities in their accounts, and choose which securities to sell, if a margin call occurs.”
M1 Finance did not review or “approve the content in its influencers’ posts prior to use or retain those communications, as required by FINRA rules. M1 Finance also failed to have a reasonable system, including written procedures, for supervising the communications that the firm’s influencers made on its behalf.”
These were in violation “of FINRA Rules 2210, 2010, 3110 (Supervision) and 4511 (General Requirements-Books and Records), as well as the Securities Exchange Act of 1934 and the Exchange Act Rules.”
In settling this matter, M1 Finance consented “to the entry of FINRA’s findings without admitting or denying the charges.”
The firm also agreed to certify that it “has remediated the issues identified by FINRA in a letter of acceptance, waiver and consent and implemented a supervisory system, including written supervisory procedures, that is reasonably designed to achieve compliance with Rule 2210.”