Laidlaw Sued By Customer For Misrepresentation

M1 Finance LLC, a securities broker dealer headquartered in Chicago, Illinois, has been censured and fined $850,000.00 by Financial Industry Regulatory Authority (FINRA) because it engaged influencers to promote its trading services through social media in a manner that violated regulatory standards aimed at ensuring fair, balanced, and transparent communication with the public; and it failed to supervise those influencers’ investment-related communications. Letter of Acceptance, Waiver, and Consent, No. 2021072581101 (March 15, 2024).

According to the AWC, M1 Finance LLC, which specializes in providing self-directed trading opportunities to retail investors through both a mobile application and a website, entered into arrangements with influencers between January of 2020 and April of 2023 to promote its services on social media platforms.

The AWC stated that these influencers, chosen based on their social media following and relevance to M1 Finance’s business, were compensated for each new account opened and funded through a unique link provided by M1 Finance. Over this period, the firm paid around 1,700 influencers more than $2,750,000.00, leading to over 39,400 new funded accounts.

FINRA’s investigation, which came about from an examination into firms’ practices of customer acquisition through social media, uncovered that M1 Finance violated FINRA rules by allowing influencers to post communications on its behalf that were misleading, not fair and balanced, and made promissory statements without adequate disclosures. The AWC stated that these posts often did not provide a reasonable basis for evaluating M1 Finance’s services and omitted material facts, making them misleading.

The regulator noted a number of instances where the content shared by these M1 Finance influencers failed to comply with regulatory standards, One common issue involved the influencers touting M1 Finance’s services as entirely free of any charges, including trading and account management fees. Those influencers did not make clear that certain transactions and services could indeed incur fees. For example, while basic trading and account maintenance might be offered free of charge, other services like margin trading or specific account transfers could come with associated costs. The influencers’ failure to disclose these potential fees presented a false picture of M1 Finance’s pricing, potentially misleading prospective customers.

Another area of concern was the representation of the firm’s margin lending program. Influencers made overly optimistic statements about the benefits of using margin, such as the flexibility in repayment terms, without reasonably discussing the risks involved, including the possibility of a margin call or the potential for fluctuating interest rates. These statements failed to provide a balanced view of the service, again misleading consumers about the nature of M1 Finance’s offerings.

Additionally, influencers made promissory statements regarding the returns and benefits of investing with M1 Finance, such as guaranteed profitability or oversimplifying the investment process, without presenting the risks of investing. This content did not provide consumers with a reasonable basis for evaluating the company’s services.

M1 Finance violated Rule 2210(d)(1) for allowing misleading, unbalanced communications; Rule 2210(b) by not pre-approving influencer posts; Rule 4511 for not retaining communication records; and Rule 3110 for failing to supervise influencers’ communications.