The Securities and Exchange Commission has charged Fundrise Advisors with paying more than $8 million to over 200 social media influencers and online publishers to solicit Fundrise advisory clients, which violated the SEC's former cash solicitation rule.
According to the SEC's order, between February 2016 and December 2021 Fundrise paid the social media influencers and online publishers to solicit Fundrise advisory clients "without the disclosure and documentation required under the former Advisers Act Rule 206(4)-3," the cash solicitation rule, which was then in place.
The SEC ordered Fundrise — an RIA based in Washington, D.C., that operates an online real estate investment platform and has $3.3 billion in assets under management — to pay a $250,000 civil money penalty within 14 days.
In December 2020, the SEC combined its marketing and cash solicitation rules into a single rule.
The SEC brought its first enforcement action related to the new Marketing Rule on Monday.
Amy Lynch, founder and president of FrontLine Compliance, told ThinkAdvisor Wednesday that cases like the one against Fundrise "are still in the pipeline at the SEC [and] will be quick to be resolved and released since Rule 206(4)-3 no longer exists."
The old cash solicitation rule "was weaved into the new Marketing Rule and rephrased as promoter arrangements," Lynch explained in an email. "The new Rule puts the direct disclosure obligation on the promoter itself, but the adviser must ensure via its written agreement with the promoter that the promoter is making the required disclosures to the prospect."
Fundrise Case
The SEC order states that "Fundrise clients were not fully informed of the content creators' financial interests in promoting Fundrise's investment advisory services and real estate investment platform and therefore lacked the information necessary to evaluate the content creators' recommendation of Fundrise. "
