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Financial Regulators’ New Target: Social Media Influencers and SPACs

Finance and Securities

The Financial Industry Regulatory Authority (“FINRA”) will conduct three new regulatory sweeps in an effort to combat various activities causing extreme fluctuations in the financial markets. FINRA has chosen to target special purpose acquisition companies (“SPACs”), social media influencers (now becoming known as “finfluencers”, and the opening of options trading accounts. [1] 

As part of FINRA’s new warnings and regulatory sweeps involving SPACs, the U.S. Securities and Exchange Commision (“SEC”) recently issued a large enforcement action of $8 million against a SPAC earlier this month. In its action resolving misrepresentation claims against the SPAC company, the SEC’s chairman even issued a rare statement. This is a warning to players in the market to not cut corners as well as notice that the SEC will go after all parties involved with SPAC deals. In this instance, for example, the SEC went after the SPAC, the SPAC’s CEO, the deal’s sponsor, and the merger target company. [2]

SPACs have become a top priority to the SEC as the agency plans to bring more cases related to lack of due diligence and fraud. Because SPACs exploded in 2020, raising $88.4 billion through IPOs in 2020 and already at least $113 billion in 2021, the SEC wants to ensure that the market is being adequately regulated. The SEC wants to ensure that disclosures provided by SPACs are clear and accurate so that people can make informed decisions on investments and voting. Parties involved in SPAC transactions may be tempted to mislead investors through inadequate due diligence when conducting SPAC mergers. [3]

As part of the regulatory sweeps, FINRA will be more closely examining paid social media influencers and how firms supervise their activities and communications. FINRA’s concern comes from the high market volatility earlier in 2021 after a large number of online retail investors bought up GameStop and other meme stocks after seeing that short-selling hedge funds had bet against those stocks. [4] 

FINRA’s regulatory sweeps will also examine whether due diligence is being conducted in the options account opening space and whether parties are acting compliant. There have been claims that online trading platforms are offering sophisticated trading to unsophisticated investors, and Robinhood Financial LLC is one company facing a majority of these claims. In June, FINRA fined Robinhood $57 million and another $12.6 million in restitution because of claims, which included alleged misrepresentations about the risks traders face with options transactions. [5]

FINRA’s sweeps, which are formally known as targeted examination letters, will be posted on its website. [6] Traders should stay aware of FINRA’s and SEC’s regulations and decisions. 

[1] Al Barbarino, “FINRA Sweeps To Target SPACs, Social Media Influencers”, Law360, 22 Jul. 2021,, acc. 30 Jul. 2021. 

[2] Al Barbarino, “SEC, Gensler Put SPAC Players On Notice With Latest Action”, Law360, 15 Jul. 2021,, acc. 6 Aug. 2021.

[3] Ibid.

[4] Al Barbarino, “FINRA Sweeps To Target SPACs, Social Media Influencers”, Law360, 22 Jul. 2021,, acc. 30 Jul. 2021. 

[5] Ibid.

[6] Ibid.

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