Regulation of Financial Influencers: Navigating Securities Law Violations and SEC Enforcement

In the age of social media, financial influencers, or “finfluencers,” have become powerful voices in shaping investment decisions. With large followings on platforms like TikTok, Instagram, YouTube, and X, finfluencers offer financial advice, promote investment products, and share trading strategies, often in an engaging, relatable style. While they have democratized access to financial education, their activities have raised significant concerns about potential securities law violations. Regulatory bodies, particularly the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), have intensified efforts to address these issues, targeting misleading promotions, undisclosed conflicts of interest, and market manipulation. This article explores the risks of securities law violations by finfluencers, including within the cryptocurrency industry, the SEC’s regulatory responses, and real-life examples of enforcement actions.

The Rise of Finfluencers and Their Influence

Finfluencers leverage their social media presence to provide financial tips, endorse investment products, or promote brokerage services. Their appeal lies in their ability to simplify complex financial concepts, making them accessible to younger and less experienced investors. A 2021 survey by the Australian Securities and Investments Commission (ASIC) found that 64% of young Australians aged 15-21 had changed their financial behavior due to finfluencer content. Similarly, a 2024 study noted that 53% of Gen Z spend over four hours daily on social media, where finfluencers integrate financial advice into entertainment, shaping financial decisions.

However, this influence comes with risks. Many finfluencers lack formal financial qualifications or regulatory oversight, unlike registered investment advisers. Their content, often stylized for virality, may prioritize engagement over accuracy, leading to exaggerated claims, omitted risks, or misleading promises of wealth. These practices can violate securities laws, particularly when finfluencers fail to disclose compensation or engage in manipulative schemes.

Potential Securities Law Violations by Finfluencers

Finfluencers operate in a highly regulated industry, and their activities can trigger violations of U.S. securities laws, including the Securities Act of 1933, the Investment Advisers Act of 1940, and FINRA rules. Key areas of concern include:

1. Undisclosed Compensation: Section 17(b) of the Securities Act prohibits promoting securities without disclosing the nature, source, and amount of compensation received. Many finfluencers are paid by firms or receive incentives for referrals, but fail to disclose these arrangements, misleading followers about their impartiality.
2. Misleading or Unbalanced Claims: FINRA Rule 2210 requires communications to be fair, balanced, and not misleading. Finfluencer posts that exaggerate potential returns, omit risks, or make unwarranted promises violate this rule. For example, promoting margin lending as flexible without disclosing strict repayment requirements can mislead investors.
3. Market Manipulation: Finfluencers with large followings can influence stock prices through “pump-and-dump” schemes, where they hype a stock to inflate its price before selling their own shares. This violates Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, which prohibit manipulative practices.
4. Unlicensed Financial Advice: Providing investment advice without registration as an investment adviser under the Investment Advisers Act can lead to violations. Many finfluencers operate without the required credentials, such as those mandated by the SEC or, in India, the Securities and Exchange Board of India (SEBI).
5. Failure to Supervise: Firms hiring finfluencers are responsible for supervising their communications. FINRA Rules 3110 and 4511 require firms to review, approve, and retain influencer content. Failure to do so can result in violations, as seen in cases involving TradeZero America and M1 Finance.

Finfluencers in the Crypto Industry

The cryptocurrency industry has become a hotspot for finfluencer activity due to its decentralized nature, high volatility, and appeal to retail investors. Finfluencers in this space often promote specific cryptocurrencies, initial coin offerings (ICOs), or non-fungible tokens (NFTs), leveraging the hype around digital assets to attract followers. However, the regulatory ambiguity in the crypto sector amplifies the risk of securities law violations.

Unique Risks in Crypto

• Unregistered Securities: Many cryptocurrencies and tokens are classified as securities under the SEC’s Howey Test (from SEC v. W.J. Howey Co.), which defines a security as an investment of money in a common enterprise with an expectation of profits from the efforts of others.

Tokens likely to be considered securities include:

• 1. ICO Tokens (Initial Coin Offerings): Most ICOs involve investors putting money into a project expecting profit based on the project’s success — classic Howey.
  2. Promoted tokens: If teams heavily market tokens with promises of future profit based on the developers’ work, they often meet the Howey criteria.
  3. Staking/DeFi tokens: If the user expects passive income from the protocol (and not from their own effort), these might qualify.

Tokens less likely to be considered securities include:

1. 1. Bitcoin (BTC): The SEC has publicly stated that Bitcoin is not a security because it is decentralized and lacks a central issuing entity. 
   2. Ethereum (ETH): The SEC has at times said ETH is not a security in its current form, though its ICO origins were more ambiguous. 
   3. Utility tokens: If a token is used only to access a service or network feature and has no expectation of profit, it’s less likely to be a security — but the distinction is narrow and often disputed.

Promoting unregistered securities, such as certain ICOs or tokens, violates Section 5 of the Securities Act. Finfluencers often fail to verify whether promoted assets are registered, exposing themselves and their followers to legal and financial risks.

• Misleading Hype: Crypto finfluencers frequently use phrases like “moon soon” or “100x potential” to drive excitement, often without disclosing the high risks of volatility or project failure. A 2023 report by the SEC noted that 70% of crypto-related social media posts lacked adequate risk disclosures, violating FINRA Rule 2210.
• Affiliate Marketing and Shilling: Many crypto finfluencers earn commissions through affiliate links for crypto exchanges or token projects. Failure to disclose these arrangements, as seen in cases like Kim Kardashian’s EthereumMax promotion, violates Section 17(b). Additionally, “shilling” tokens without disclosing personal holdings can mislead investors into buying assets that finfluencers plan to sell at a profit.
• Pump-and-Dump in Crypto: The crypto market’s low liquidity makes it particularly susceptible to pump-and-dump schemes. Finfluencers can coordinate promotions on platforms like Discord or Telegram, driving up token prices before dumping their holdings. The SEC’s 2022 case against eight influencers highlighted how such schemes targeted crypto tokens, causing significant investor losses.

Regulatory Challenges

The decentralized and global nature of cryptocurrencies complicates enforcement. Many crypto projects operate offshore, outside the SEC’s jurisdiction, and finfluencers may promote tokens from pseudonymous accounts, making accountability difficult. The SEC has responded by prioritizing high-profile cases to set precedents and collaborating with platforms like X to monitor crypto-related content. In 2025, the SEC introduced guidelines requiring crypto influencers to register as investment advisers if they provide personalized advice, though enforcement remains challenging due to the sheer volume of content.

SEC and FINRA Enforcement Efforts

The SEC and FINRA have ramped up efforts to regulate finfluencers, recognizing their growing influence and potential for harm. Key initiatives include:

• FINRA’s Finfluencer Sweep: Since September 2021, FINRA has conducted a targeted examination to assess how firms manage customer acquisition through social media. This sweep led to enforcement actions in 2024, with fines imposed on firms like M1 Finance ($850,000) and TradeZero America ($250,000) for failing to supervise finfluencer content.
• SEC Investor Alerts: The SEC has issued warnings about the risks of following social media investment advice, particularly targeting younger investors. These alerts emphasize the need to verify the credentials of finfluencers and avoid being swayed by celebrity endorsements, especially in the crypto space.
• Enforcement Actions Against Individuals: The SEC has pursued high-profile cases against finfluencers for undisclosed promotions and fraudulent schemes. These actions aim to deter bad actors and protect investors from misinformation.
• International Collaboration: The SEC and FINRA collaborate with global regulators, such as the UK’s Financial Conduct Authority (FCA) and Australia’s ASIC, to address finfluencer misconduct. In 2025, the FCA led a crackdown, resulting in 650 social media post takedowns and three arrests in the UK, many of which were related to crypto promotions.

Real-Life Examples of Finfluencer Charges

Several high-profile cases illustrate the SEC’s and FINRA’s commitment to cracking down on finfluencer violations, particularly in the crypto industry:

1. Kim Kardashian (2022): The SEC charged Kim Kardashian with violating Section 17(b) for promoting EthereumMax (EMAX) on Instagram without disclosing she was paid $250,000. Kardashian settled, paying a $1.26 million penalty, without admitting or denying the charges. The case highlighted the SEC’s focus on celebrity endorsements in the crypto space.
2. Paul Pierce (2023): Former NBA star Paul Pierce was charged by the SEC for promoting EMAX tokens on Twitter without disclosing compensation worth over $244,000. Pierce used phrases like “to the moon,” signaling high returns, which the SEC deemed misleading. He settled for over $1.4 million.
3. Eight Social Media Influencers (2022): The SEC and Department of Justice charged eight individuals, including Edward Constantinescu, Perry Matlock, and John Rybarczyk, in a $100 million pump-and-dump scheme. Using Twitter and Discord, they promoted themselves as successful traders, hyped stocks and crypto tokens, and sold shares at inflated prices without disclosing their intent. The SEC’s civil charges and DOJ’s criminal charges underscored the severity of market manipulation.
4. Fundrise Advisors (2023): The SEC accused Fundrise Advisors of paying over 200 influencers to solicit clients without proper disclosure, violating Section 206(4) of the Investment Advisers Act. The firm settled for a $250,000 penalty and agreed to a cease-and-desist order.
5. TradeZero America (2024): FINRA fined TradeZero America $250,000 for failing to review or retain influencer content from July 2020 to October 2022. Influencers made exaggerated claims about day-trading, including crypto trading, without disclosing risks, violating FINRA Rules 2210 and 2010.
6. M1 Finance (2024): FINRA imposed an $850,000 fine on M1 Finance for similar violations. Influencers promoted margin lending with false claims, such as flexible repayment terms, without firm oversight. Over 39,400 accounts were opened through 1,700 influencers, some of whom promoted crypto products, highlighting the scale of unsupervised activity.

Challenges and Future Directions

Regulating finfluencers presents challenges due to the global nature of social media and varying regulatory frameworks. In the crypto industry, the lack of clear classification for many digital assets complicates enforcement. In India, for example, SEBI struggles to classify finfluencers as research analysts due to their lack of formal qualifications, leaving a regulatory gap. Additionally, the rapid pace of social media content creation outstrips traditional oversight mechanisms, making real-time monitoring difficult.

To address these issues, regulators are exploring stricter guidelines. SEBI is developing a draft discussion paper to regulate unsolicited financial advice on social media, including crypto-related content. The FCA has proposed mandatory disclosures for finfluencers, while ASIC emphasizes the need for Australian Financial Services licenses. In the U.S., the SEC is enhancing its social media monitoring and encouraging firms to adopt robust compliance programs, including pre-approval of influencer content and clear disclosure policies, with a particular focus on crypto promotions.

Best Practices for Finfluencers and Firms

To avoid violations, finfluencers and firms, especially those in the crypto industry, should:

• Disclose Compensation: Clearly state any financial relationships or incentives, including referral fees, affiliate links, or token allocations, as required by Section 17(b).
• Ensure Fair and Balanced Content: Avoid exaggerated claims, such as guaranteed crypto returns, and include risk disclosures as required by FINRA Rule 2210.
• Implement Supervision Systems: Firms must review and retain influencer content, ensuring compliance with FINRA Rules 3110 and 4511, particularly for crypto-related promotions.
• Obtain Proper Licensing: Finfluencers providing investment advice should register as investment advisers or work under licensed firms, especially when promoting securities-like tokens.
• Monitor and Enforce Policies: Firms should actively monitor influencer activity, terminate non-compliant influencers, and verify the regulatory status of promoted crypto assets.

Conclusion

Finfluencers, particularly in the crypto industry, have transformed financial guidance, making it more accessible but also riskier for uninformed investors. Their potential to violate securities laws through undisclosed compensation, misleading claims, or market manipulation has prompted robust responses from the SEC and FINRA. High-profile cases, such as those involving Kim Kardashian and Paul Pierce, as well as the $100 million pump-and-dump scheme, demonstrate the consequences of non-compliance, particularly in the volatile crypto market. As regulators worldwide strengthen oversight, finfluencers and firms must prioritize transparency and compliance to protect investors and maintain market integrity.

For more information about the rules & regulations that apply to investor relations activities and financial influencing or to speak with a Securities Attorney, please contact Brenda Hamilton at 200 East Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at info@securitieslawyer101.com.  This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Attorneys
Brenda Hamilton, Securities Attorney
200 E Palmetto Rd, Suite 103
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com