A Texas-based online brokerage app offering self-directed trading for retail investors has been wrapped up by FINRA enforcers, paying $200,000 to settle charges it didn’t oversee the ads of paid social media influencers.
The settlement with Cobra Trading comes several weeks after FINRA fined M1 Finance for similar alleged compliance lapses. The M1 settlement was the first enforcement action springing from targeted exams probing firms’ oversight of paid social media influencers.
Cobra Trading employs 12 registered reps in Carrollton, Texas. The FINRA settlement with Cobra centers on the time between November 2019 and October 2023. In that period, Cobra Trading paid 17 influencers for “promotional communications” on social media, including forums and video-sharing platforms.
The firm gave each influencer a unique link to share with potential customers and offered a flat fee for each new account opened. During that time, customers opened 775 new accounts using such links, each funded with at least $25,000. As a part of Cobra’s agreements with influencers, they’d specify the number and frequency of communications the firm required influencers to post.
The firm also offered “selling points” influencers could use in promotion. However, some of the influencers’ posts weren’t fair or balanced, according to FINRA.
In one case, an influencer posted that they “took a $30k account and turned it into $133K in less than 30 days” with a Cobra account; in other posts, the same influencer said he’d earned more than $2.4 million in net profit for the year through Cobra, and said it was “not a bad [sic] for only ONE HOUR of trading per day!”
“Such posts did not provide a balanced discussion of the risks involved in investing and improperly suggested that individuals could achieve similar results,” the letter read. “In addition, the majority of the influencers’ posts promoting the firm failed to disclose that they were advertisements.”
Additionally, Cobra never had an “appropriately qualified registered principal” review influencers’ videos before they were published and didn’t maintain records of influencers’ videos or when they were posted, according to FINRA. The b/d regulator also knocked Cobra for not establishing supervisory systems designed to supervise these kinds of retail communications.
Cobra did not admit or deny the allegations but agreed to a censure in addition to the fine. The firm also consented to creating supervisory systems to meet the needs detailed in the settlement within 180 days.
Representatives from Cobra Trading did not respond to a request for comment prior to publication.
In 2021, FINRA revealed they’d started “targeted exams” into how firms recruit social media influencers, followed by the M1 Finance enforcement action earlier this month. The charges against M1 were similar to the Cobra Trading allegations, with some influencers claiming the firm’s services were free without revealing that fees could apply, among other mischaracterizations.
FINRA also released a set of tips for broker/dealers who work with social media influencers, including evaluating potential influencers’ backgrounds and prior social media activity for compliance and reputational risks (though some critiqued the tips for being “borderline unworkable” for firms).