The Securities and Exchange Commission has charged Fundrise Advisors LLC of Washington, D.C. for a violation of the cash solicitation rule, according to a report by Financial Advisor.
Fundrise, an investment advisor, agreed to a $250,000 civil penalty to settle the charges. The SEC found that from February 2016 through December 2021, the firm paid $8 million cash to over 200 social media influencers and publishers of online newsletters to solicit clients for Fundrise, but did not require the solicitors to provide clients with certain disclosures required by the rules governing cash solicitation payments. Specifically, the required disclosures involved Fundrise’s brochure and a separate written document describing the solicitor’s relationship with Fundrise and the terms of the compensation agreement.
“As a result, Fundrise clients were not fully informed of the content creators’ financial interests in promoting Fundrise’s investment advisory services and real estate investment platform and therefore lacked the information necessary to evaluate the content creators’ recommendation of Fundrise,” the SEC said.
Under the Investment Advisors Act of 1940, firms are barred from paying a cash fee to someone for soliciting clients without disclosing that relationship to the client upfront, giving the prospective client the firm’s brochure at the time of the referral, and providing the client with documentation of the relationship, including the terms of compensation.
Without admitting or denying the findings, Fundrise agreed to the civil penalty as well as a cease-and-desist order and a censure..
Alison Staloch, CFO of Fundrise and former chief accountant of the division of investment management at the SEC, issued a statement that read in part, “Fundrise fully cooperated with the SEC staff in reaching this settlement, which addresses past conduct concerning the firm’s management of content creators. I have a deep appreciation for the importance of compliance in our industry. This settlement reinforces the significance of adhering to regulatory requirements and upholding the trust our clients place in us.”
The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. Our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.
