In today’s digital age, social media has become a powerful tool for financial firms to reach potential clients. However, leveraging this platform comes with its own set of regulatory challenges. Recent events involving Cobra Trading, Inc. underscore the importance of having knowledgeable securities attorneys to navigate the complexities of compliance in social media promotions. Bakhtiari & Harrison, a premier law firm focusing on securities law, is dedicated to helping firms maintain compliance and protect their reputations.
Cobra Trading, Inc. Sanctioned by FINRA
On April 3, 2024, Cobra Trading, Inc. (CRD #132078, Carrollton, Texas) faced sanctions from the Financial Industry Regulatory Authority (FINRA). The firm was censured, fined $200,000, and required to certify that it had remediated the issues identified in the Letter of Acceptance, Waiver, and Consent (AWC). These sanctions highlight the critical need for robust supervisory systems and effective written supervisory procedures (WSPs).
Without admitting or denying the findings, Cobra Trading consented to the sanctions and acknowledged several compliance failures. The firm paid influencers to promote its services on social media platforms, including interactive forums and video-sharing sites. However, many of these promotional communications were neither fair nor balanced and contained promissory claims. Moreover, influencers were compensated based on the number of new accounts opened and funded through unique links provided by the firm, with no cap on their earnings.
Cobra Trading provided influencers with “selling points” to use in their promotions, highlighting specific services and features. However, the majority of these influencer posts failed to disclose that they were advertisements. The firm also neglected to approve or maintain records of these videos before they were published, and did not have a qualified registered principal review the videos prior to their release.
The Importance of a Robust Supervisory System
The findings against Cobra Trading emphasize the necessity of establishing and maintaining a supervisory system that ensures compliance with regulatory standards. The firm’s WSPs were not reasonably designed to supervise influencers’ retail communications. Specifically, the firm lacked a system for principal review and approval of influencer posts before use, and did not supervise influencer posts in online interactive forums as rigorously as it supervised other forms of correspondence.
In response to these deficiencies, Cobra Trading revised its supervisory system and WSPs to require a registered principal to review and approve influencer posts before they are published. This proactive step is crucial in mitigating compliance risks and maintaining the integrity of promotional activities.
How Bakhtiari & Harrison Can Help
At Bakhtiari & Harrison, our securities attorneys are well-versed in the intricacies of financial regulations and compliance. We assist firms in developing and implementing comprehensive supervisory systems and WSPs tailored to their unique needs. Our expertise extends to advising on the use of social media for promotions, ensuring that all communications are fair, balanced, and compliant with regulatory standards.
Our team of securities attorneys is dedicated to providing the highest level of legal support, helping clients avoid the pitfalls encountered by firms like Cobra Trading. By partnering with Bakhtiari & Harrison, you can ensure that your firm’s promotional activities are conducted within the bounds of the law, protecting your business and enhancing your reputation.
Contact Bakhtiari & Harrison Today
For expert legal advice and support in securities law, including compliance with social media promotions, contact Bakhtiari & Harrison. Our team of experienced securities attorneys is here to provide the guidance and support you need to navigate regulatory challenges and maintain compliance. Visit our website or call us today to learn more about our services.