The SEC Charges Influencers In An Alleged $100M “Pump & Dump” Scheme

Earlier this week, the Securities and Exchange Commission (SEC) announced charges against seven financial influencers in a $100 million securities fraud.

What Happened

According to the SEC, the influencers used Twitter and Discord to manipulate exchange-traded stocks. They purchased certain stocks and then encouraged their hundreds of thousands of followers and subscribers across Twitter, Discord, and YouTube to do the same. However, they would then sell the stocks when prices and trading volume were up but often didn't disclose that they were dumping the securities. They also flaunted their flashy lifestyles. An eighth influencer was charged with aiding and abetting the alleged scheme by co-hosting podcasts with the others and positioning them as financial experts.

The Ugly Side Of Influencers

It hasn't been a good year for financial services and influencers. Earlier this fall, Kim Kardashian was charged by the SEC for unlawfully promoting a cryptocurrency. Then, at the beginning of November, influencers and celebrities who partnered with crypto exchange FTX faced backlash from their communities following its collapse.

These reveal the ugly side of influencers. While influencers can help entertain, educate, and inform for good, their power can also be harmful. This is especially true regarding industries like finance and health. As in this scenario, these creators misused their influence and misled their community, who looked at them as individuals looking to help.

More situations will likely happen as more people gravitate to social media personalities and see them as experts. It won't always be as detrimental as people losing significant amounts of money like this. But even an influencer recommending a product and their followers buying it and realizing its poor quality can lead to mistrust. The more this happens over time, the more people will be wary of taking recommendations or advice from the people they follow.

What It Means Going Forward

Influencers aren't going anywhere, but we're at an inflection point. Followers of influencers need to be careful about where and who they get information and advice from, particularly when it comes to things related to industries that often require certification or qualification to operate formally.

Also, social media platforms or even U.S. governing bodies must seek ways to protect their users, especially younger generations, who trust their favorite influencers more than traditional outlets. The great thing about social media is that it democratizes information and makes it more accessible, but with that comes a lot of risks.

Possible Solutions

Some ways to minimize that risk could be implementing certification programs to help users identify authoritative sources, like YouTube's healthcare certification program, and requiring creators to demonstrate their qualifications before promoting specific products and services, which China recently implemented. However, these could be hard to enforce due to the big battle between freedom of speech and content moderation. So, in the short term, social media platforms could add more disclaimers to protect their users more effectively.

One thing for sure is that influencers are no longer under the radar. The SEC and Federal Trade Commission (FTC) look like they will be cracking down more, meaning both creators and brands must be careful.