An online brokerage firm is being penalized by regulators for rules violations involving its dealings with social media influencers, reports Investment News.
The Financial Industry Regulatory Authority said that Open to the Public Investing, Inc. has agreed to pay a $350,000 fine as part of a settlement. FINRA determined that from January 2020 to at least September 2022, Open to the Public Investing paid individuals with followings on social media sites to promote the firm in social media communications. Some of those communications included statements that were not fair and balanced or made claims that were misleading or unwarranted, the authority said.
The influencers were found to have posted communications claiming that the firm offered “commission free trades” but did not disclose that other fees may apply or provide a link to the firm’s fee schedule.
In addition, some influencers promoted the ability to buy fractional shares through the firm but did not disclose certain limitations associated with investing in fractional shares. Several posts also failed to clearly identify the communications as paid advertisements.
FINRA added that Open to the Public Investing did not review and maintain records of all retail communications disseminated on the firm’s behalf by its influencers, and failed to establish, maintain, and enforce a reasonably designed supervision system with respect to such communications.
The firm was found to have violated the Securities Exchange Act of 1934 § 17(a), Exchange Act Rule 17a-4, and FINRA Rules 2210(b), 2210(d) 4511, 3110, and 2010.
Open to the Public Investing did not admit or deny the findings but consented to the fine and being censured.
The use of social media and influencers by brokerage firms has been under scrutiny by FINRA in recent years. Last September, FINRA staff members reported that 70% of the 15 firms and 1,300 communications reviewed were out of compliance with the authority’s rules.
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