SEC Actions Send Message: Influence with Caution

After all, the influencers charged by the SEC weren’t promoting adult content, or hyping the latest scenes uploaded to their OnlyFans accounts; they “promoted themselves as successful traders and cultivated hundreds of thousands of followers on Twitter and in stock trading chatrooms on Discord”, something it’s safe to say most adult performers are very unlikely to be doing at this moment.

Adult influencers have been known to promote cryptocurrency-related efforts, however, including emerging cryptocurrency tokens, companies that process crypto transactions and other businesses, projects and platforms that have proven volatile at times. I wouldn’t be too surprised if some have dipped their toes into discussions of publicly traded stocks along the way, as well.

At a minimum, what the SEC’s complaint against the eight defendants announced last month suggests is that the SEC is paying attention to how influencers use social media when it comes to areas that fall under the Commission’s authority.

In a post published to the “Insights” section of the international law firm’s website, attorneys from Vinson & Elkins wrote that the SEC’s action “is yet another reminder that the Commission can and will use statements made via social media to open investigations and support charges of potential violations of the federal securities laws.”

“Additionally, it’s clear from the complaint, which references texts and a broad array of social media postings, including ‘deleted old tweets and Discord chats’ that the Commission used a broad array of SEC resources, including market intelligence, to build their case and support their allegations,” the firm added. “Even individuals who do not work for a specific public company, and aren’t associated with a registered entity such as a broker-dealer, can commit securities fraud through statements made on social media. And perhaps just as importantly, this case shows the SEC can find them.”

In its complaint against the influencers charged last month, the SEC is seeking “permanent injunctions, disgorgement, prejudgment interest, and civil penalties against each defendant”, and criminal charges against all eight defendants have also been filed in a parallel action brought by the U.S. Department of Justice’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Texas. That’s a pretty good heap of trouble to find yourself in for offering stock tips – and not the sort of attention any influencer wants to attract, obviously.

Again, it’s important to recognize that the actions allegedly taken by these defendants are very different from the routine behavior of most influencers (adult or otherwise) who are out there using social media on any given day. It’s also true that if their actions were as described in the SEC complaint, these people knew what they were doing and didn’t accidentally and innocently blunder into an unintentional violation of securities laws.

Still, it pays to be cautious and to understand the rules that govern the use of social media to promote any product, service and/or commercial venture, particularly if you are being compensated for offering your endorsement, review or recommendation. These rules include the Federal Trade Commission’s disclosure requirements for social media influencers – a good place to start if you aren’t already familiar with the FTC’s proscriptions for when, how and what you must disclose about the brands and products you promote.

As for promoting securities and handing out investment advice, the simplest rule to follow is “don’t do it.” But if securities simply are your thing and you feel you must weigh in with your stock tips, it’s probably a good idea to ask an attorney some questions about how to assure compliance with the laws that pertain to the securities industry, first.

A good resource for U.S.-based social media influencers that covers a wide range of subjects, including government regulations and enforcement actions, is the American Influencer Council website. On the AIC site, you will find discussion of many pertinent regulatory and legal issues, including more information on disclosure requirements issued by the SEC, FTC and even the Federal Election Commission (FEC), all of which can help manage your risk and keep you out of hot water with the government.

Caution photo by Fernando Arcos from Pexels