Fundrise Sued by SEC

The U.S. Securities and Exchange Commission (SEC) has levelled allegations against Fundrise Advisors, LLC, asserting that the Washington-based investment advisory firm contradicted the nation's regulations pertaining to cash solicitation. The SEC disclosed this Tuesday that Fundrise Advisors engaged over 200 social media influencers and digital newsletter publishers to actively attract clients to its investment platform in a manner that did not encompass the necessary compliance with required disclosures as mandated by the law.

A focal point of the SEC's observations was Fundrise's informational brochure, which was lacking in the specified disclosures. Notably, the contractual arrangement between the investment company and the influencers conspicuously omitted any reference to these essential disclosures. Nevertheless, the regulatory body acknowledged that Fundrise had reached an accord to bring closure to the case by agreeing to remit a civil penalty amounting to $250,000.

Moreover, in tandem with this resolution, the SEC has reported that Fundrise has consented to both a cease-and-desist directive and a formal censure. However, it is important to note that the company neither admitted to nor refuted the regulator's findings.

Elaborating on the details, the SEC expounded, “Fundrise consented to the entry of the SEC's order finding that the firm willfully violated the compliance and former cash solicitation provisions of Section 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-3 and 206(4)-7 thereunder.”

Recently, regulatory bodies across major global financial markets have turned their gaze toward what has become known as 'finfluencers'—financial technology influencers. Last month, the Financial Conduct Authority (FCA) in the United Kingdom unveiled its intent to fortify measures against unauthorized and non-compliant financial promotions. Concurrently, the FCA intends to refine its guidelines for social media use, aiming to ensure more effective adherence when financial entities publicize their products or services online.

This thematic concern extends beyond the U.K. Partnering with prominent social media influencer Sharon Gaffka and the FCA collaborated with the Advertising Standards Authority to launch a campaign discouraging 'finfluencers' from endorsing illicit 'get rich quick' schemes. Similarly, the Cyprus Securities and Exchange Commission embarked on an investor protection initiative in response to promoting intricate and high-risk investment products through social media, often endorsed by celebrities. This campaign raised questions regarding the 'gamification' of retail investments.

Parallelly, as early as 2021, the Australian Securities and Investments Commission (ASIC) sounded a cautionary note against 'finfluencers', underscoring that many were dispensing unlicensed financial counsel within the nation. ASIC emphasized that only entities and individuals holding an Australian Financial Services (AFS) license were sanctioned to provide financial advice to investors.