← Broker database 2024-04-03
Cobra Trading Fined $200,000 for Unregulated Social Media Influencer Promotions
According to FINRA, Cobra Trading, Inc. (CRD #132078), a broker-dealer based in Carrollton, Texas, was censured and fined $200,000 for violations related to its use of social media influencers to promote the firm's services. The action, resolved on April 3, 2024, found that Cobra Trading paid influencers to create and distribute promotional communications on social media that were unfair and unbalanced, failed to approve or preserve influencer video content, and failed to supervise influencer-generated retail communications.
Social media influencer marketing has become a significant channel for financial services firms seeking to reach new audiences, particularly younger investors. However, FINRA rules require that all communications with the public, including those made by paid influencers on behalf of a firm, meet the same standards of fairness, balance, and accuracy as traditional advertising. This means that promotional content must present a balanced view that includes appropriate risk disclosures and does not make exaggerated or misleading claims.
Cobra Trading's failure to approve influencer content before it was published represents a serious supervisory lapse. Under FINRA Rule 2210, a registered principal must review and approve retail communications before they are used. By allowing influencers to post promotional videos without prior review, the firm lost control over the messaging being delivered to potential investors, creating the risk that misleading or non-compliant information would reach the public.
Equally concerning was the firm's failure to preserve the influencer videos. FINRA's recordkeeping requirements mandate that firms retain copies of all communications with the public. When influencer content is not preserved, regulators cannot review the communications for compliance, and there is no audit trail to assess whether investors were harmed by misleading claims.
This case is particularly relevant for investors who discover financial products or services through social media. Investors should approach influencer-promoted financial content with caution, recognizing that paid promoters may not present a complete or balanced picture of risks and costs. Just because a financial product is promoted by a popular social media personality does not mean the investment is suitable or that all material risks have been disclosed. Investors are encouraged to conduct independent research and consult FINRA BrokerCheck before opening accounts based on social media promotions. This action was resolved under FINRA Case #2021072501001.