U.S. broker-dealer regulator FINRA announced that it has fined leveraged finance firm M1 Finance LLC $850,000 for social media posts made by influencers on behalf of the firm that were not fair or balanced, or contained excessive, unwarranted, promiscuous or misleading claims.
This case stems from FINRA’s targeted examination of firm practices related to customer acquisition through social media channels and represents the first formal FINRA Enforcement disciplinary action involving a firm’s oversight of social media influencers.
Bill St. Louis, FINRA’s Executive Vice President and Chief Enforcement Officer 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 review whether firms use practices and maintain oversight systems that are reasonably designed to address the risks associated with social media influencer programs.”
From January 2020 to April 2023, M1 Finance paid social media influencers to post content promoting the company and instructed the influencers to include a unique hyperlink to the company’s website that could be used by potential new clients to open and fund an M1 Finance brokerage account. M1 Finance also provided 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 company paid influencers participating in its program a flat fee for each new account opened and funded by the customer using a unique link provided by M1 Finance. The company did not limit the 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 behalf of the company.
M1 Finance influencers made social media posts promoting the company that were not fair and balanced, in violation of FINRA Rules 2210 (Communications with the Public) and 2010 (Trade Price Standards and Trading Principles). For example, an influencer advertising M1 Finance’s margin lending program stated that customers could “pay [margin loans] back anytime. . . there is no fixed period of time.’ But in reality, investors who use margin are not entitled to any extension of time to meet the company’s margin requirements, and the company can, without contacting such investors, increase the maintenance margin requirement on their accounts at any time, force selling securities in their accounts and choosing which securities to sell if a margin call occurs.
M1 Finance has not reviewed or approved the content in its influencer posts prior to use or retained such communications as required by FINRA rules. M1 Finance also failed to have a reasonable system, including written procedures, to oversee communications made by the company’s influencers on its behalf. These violated FINRA Rules 2210, 2010, 3110 (Supervision), and 4511 (General Requirements-Books and Records), as well as the Securities Exchange Rules of 1934 and the Exchange Act Rules.
To settle this matter, M1 Finance consented to the entry of FINRA’s findings without admitting or denying charges. The firm also agreed to certify that it has remedied the issues identified by FINRA in an acceptance, waiver and consent letter and has implemented a system of oversight, including written oversight procedures, that is reasonably designed to achieve compliance with Rule 2210.
This is the second time in less than six months that M1 Finance has been on the wrong side of a FINRA action. In December 2023 M1 Finance was one of a handful of financial firms fined $2.6 million for securities lending violations.
FINRA publishes disciplinary complaints, decisions and other information in its online disciplinary actions database and publishes on its Monthly Disciplinary Actions page a summary of disciplinary actions against firms and individuals for violations of FINRA rules. federal securities laws, rules and regulations; and the Municipal Board of Securities Regulations.
About FINRA
FINRA is a non-profit organization dedicated to investor protection and market integrity. Regulates a critical part of the securities industry — publicly traded brokerage firms in the US FINRA, overseen by the SEC, makes rules, reviews and enforces compliance with FINRA rules and federal securities laws, registers the broker-dealer staff and offers education and training and informs the investing public. In addition, FINRA provides oversight and other regulatory services for stock and options markets, as well as trade reporting and other industry utility services. FINRA also operates a dispute resolution forum for investors and brokerage firms and their registered employees.