According to FINRA, Digital Brokerage Services LLC was censured and fined $85,000 for distributing retail communications regarding its mobile application and crypto assets that failed to comply with FINRA's content standards.

The firm distributed certain retail communications about crypto assets or crypto asset-related services that contained two significant deficiencies. First, some communications failed to clearly disclose that the crypto assets were not offered through a registered broker-dealer. This omission is material because investments through registered broker-dealers provide certain regulatory protections that may not apply to crypto assets offered through other channels.

Second, the communications did not provide a fair and balanced presentation of the benefits and risks of the crypto products discussed. FINRA rules require that communications with the public present a balanced picture, including discussion of potential risks alongside any benefits or opportunities. Promotional materials that highlight potential gains without adequate discussion of risks can mislead investors, particularly with volatile and complex products like crypto assets.

Cryptocurrency investments carry unique and substantial risks, including extreme price volatility, limited regulatory oversight, cybersecurity vulnerabilities, and the potential for total loss. The lack of investor protections that apply to traditional securities, such as SIPC insurance, makes clear and prominent risk disclosure particularly important for crypto products.

The timing of these violations is significant, as retail interest in crypto assets surged during the relevant period. Investors making decisions based on incomplete or unbalanced information about crypto products may not have fully understood what they were purchasing or the risks involved.

After FINRA notified Digital Brokerage Services of the violative communications, the firm took corrective action. It stopped using certain communications related to crypto assets and undertook a comprehensive review of how it described crypto assets and crypto asset-related services. The firm then discontinued or updated its communications to achieve compliance with FINRA's content standards.

This case serves as a reminder that even in emerging areas like cryptocurrency, established securities regulations regarding communications with the public continue to apply. Firms must ensure their marketing materials are fair, balanced, and include all necessary disclosures.