Reported by: Eric Ball, Kimberly Culp

Brands and influencers alike should proceed with caution as regulators continue to scrutinize how influencers market information to their followers and how brands deploy influencer marketing. Recent enforcement actions have made one thing clear: disclose, disclose, disclose.

On December 14, 2022, the SEC announced charges against eight individuals for their roles in an alleged “pump and dump” scheme. Seven of the individuals are influencers who, the SEC alleges, used their large social media following of novice investors to manipulate stock prices for their own gain. The eighth individual is a podcaster who hosted the influencers and propped up their claims of investment expertise. He was charged with aiding and abetting the scheme. The alleged profits were substantial—the SEC estimates that the defendants brought in around $100 million. According to Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit, these “defendants used social media to amass a large following of novice investors and then took advantage of their followers by repeatedly feeding them a steady diet of misinformation[.]” The SEC drew up charges for securities fraud.

At the crux of the SEC’s case are allegations that the defendants purchased various stocks and then, while holding themselves out as expert investors, persuaded their followers to invest in those same securities. The SEC alleges that the influencers were disingenuous in their recommendations and used misinformation to convince their followers to purchase securities held by the defendants. All the while, the defendants were quietly selling off shares once volume or price benchmarks were achieved. The result was significant profits for the defendants with little regard to the financial well-being of their followers.

Read full report: https://www.jdsupra.com/legalnews/pump-and-dumpers-take-their-lumps-4731856/