Cobra Trading to pay $200k fine for misleading promotions by influencers

Cobra Trading, Inc. has agreed to pay a $200,000 fine as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

Between November 2019 and October 2023, Cobra Trading paid individuals with followings on social media sites (commonly known as “influencers”) to promote the firm in social media communications. Such influencers posted on the firm’s behalf communications about the firm on social media sites that were not fair and balanced or made claims that were promissory.

During the relevant period, Cobra Trading paid 17 influencers for promotional communications on social media platforms, including online interactive forums and video sharing platforms. The firm paid these influencers a flat fee if a new account was opened and funded by a customer using a unique link provided by Cobra Trading and did not limit the compensation influencers could earn. Influencers’ posts were widely distributed; indeed, certain videos posted by influencers had thousands of views. During this period, customers opened 775 new accounts, each funded with at least $25,000, using the unique referral links provided to influencers by Cobra Trading.

Certain of the influencers’ posts were retail communications of Cobra Trading and therefore subject to FINRA Rule 2210. Cobra executed an “Advertising Agreement” with each influencer. In one of these agreements, the firm specified the number and frequency of communications on social media outlets that the influencer was required to post to promote the firm.

Cobra Trading also provided influencers with a unique link that directed people to a page on the firm’s website where they could open and fund a Cobra Trading brokerage account. The firm encouraged the influencers to include this link in their social media posts about the firm.

Further, the firm provided influencers with “selling points” that influencers could use in their social media communications, and the firm highlighted specific services and features offered by Cobra Trading that the influencers could promote.

During the relevant period, influencers created posts that promoted the firm but were not fair and balanced and contained promissory language.

For instance, one influencer promoted the firm by posting about his profits on a social media platform, telling his followers: “I took a $30k account and turned it into $133K in less than 30 days w/a Cobra account.” The same influencer made a separate post stating that in 2021 he had earned “+$2,446,617.37 NET PROFIT (after Locate Fees & Commissions) for the year verified by @cobra_trading” and noting, “Not a bad [sic] for only ONE HOUR of trading per day!”

Such posts did not provide a balanced discussion of the risks involved in investing and improperly suggested that individuals could achieve similar results. In addition, the majority of the influencers’ posts promoting the firm failed to disclose that they were advertisements.

Therefore, Cobra Trading violated FINRA Rules 2210(d)(1) and 2010.

During the relevant period, Cobra Trading did not have an appropriately qualified registered principal review influencers’ videos prior to their publication. During that period, the firm also did not maintain records of influencers’ videos or the dates they were used.

Therefore, Cobra Trading violated Section 17(a) of the Exchange Act, Exchange Act Rule 17a-4, and FINRA Rules 2210(b), 4511, and 2010.

During the relevant period, Cobra Trading did not establish, maintain, or enforce a system, including written supervisory procedures (WSPs), reasonably designed to supervise retail communications posted on the firm’s behalf by influencers. With respect to videos created by influencers that promoted Cobra Trading, the firm’s WSPs did not require, and the firm did not have a system for principal review and approval prior to use.

The firm’s WSPs also did not require supervision of influencers’ posts made in online interactive electronic forums in the same manner as the firm reviewed and supervised correspondence.

The firm also did not reasonably supervise its retail communications posted by influencers for compliance with FINRA Rule 2210(d)(1). The firm also did not establish or maintain supervisory procedures to preserve records of influencers’ videos or their dates of use, as required by Section 17(a) of the Exchange Act, Exchange Act Rule 17a-4, and FINRA Rule 2210(b)(4) and 4511.

Since the relevant period, the firm has revised its supervisory system, including its WSPs, to require a registered principal of the firm review and approve influencer posts prior to use.

By failing to establish, maintain, and enforce a reasonably designed supervisory system, including WSPs, for its retail communications disseminated by its influencers, Cobra Trading violated FINRA Rules 3110 and 2010.

On top of the $200,000 fine, the firm has agreed to a censure.