Webull Financial Settles Violations with $1.6 Million Fine Following FINRA Review

Key Takeaways

• Violations and Failure to Supervise: Webull Financial LLC faced allegations of failing to reasonably supervise social media communications from influencers and neglecting to deliver required customer disclosures under the Form CRS mandate.
• Social Media Compliance Issues: Webull’s failure to monitor influencer posts resulted in unbalanced and exaggerated statements, violating FINRA communication rules.
• Form CRS Failures: The firm also failed to deliver the required Form CRS to millions of retail customers and did not maintain appropriate supervisory systems.
• Sanctions Imposed: Webull Financial has agreed to pay a $1.6 million fine and accept a censure as part of its settlement.

Deep Dive

In an effort to close the book on several rule violations, Webull Financial LLC has agreed to pay a $1.6 million fine and accept a censure from FINRA. The case highlights significant lapses in supervision and transparency by a firm that has become a key player in self-directed retail trading. With this settlement, Webull seeks to put a period on a series of compliance missteps that have made waves in the financial regulatory world.

When Webull first entered the retail trading game in 2018, it did so with a lot of fanfare. The firm quickly became known for its mobile platform that made investing accessible for everyday investors. But as the years rolled by, some of Webull's promotional tactics raised red flags. Between 2019 and 2022, the company paid hundreds of social media influencers to promote its services, but here’s the catch, those promotions weren’t as transparent or regulated as they should have been.

FINRA found that influencer posts contained exaggerated claims about investment returns and misrepresented the risks associated with margin trading. Some posts even touted trading with Webull as "free," without clearly disclosing that certain fees could apply. One influencer went as far as to claim that investing with Webull could turn users into "millionaires." These kinds of statements are not only misleading but violate FINRA’s strict guidelines for fair and balanced communications.

At the heart of this case is the need for transparency in communications, particularly when promoting financial products. FINRA has clear rules about how firms must communicate with the public, especially when they rely on third parties like influencers to spread the word. Webull's violations were not just about the messages being inaccurate, they were also about the failure to properly oversee and approve these communications before they went public. As Webull used influencers to push its brand, it was on the hook for making sure those posts were compliant with FINRA's communication rules.

Webull also failed to properly identify the influencer posts as paid advertisements, which is another issue that regulators took seriously. It’s a stark reminder for all firms: when you lean on third parties for promotion, you can’t just wash your hands of it. You still need to make sure the content meets regulatory standards.

The Form CRS Fiasco

On top of influencer issues, Webull also faced significant shortcomings when it came to delivering required disclosures to customers. Specifically, the firm failed to timely deliver its Form CRS, an important document that explains the firm’s services, fees, and the risks involved, to millions of retail customers.

Webull initially filed the Form CRS by the deadline in 2020, but then a series of system errors meant that many new customers didn’t get the required information until well into 2022. It wasn’t until FINRA raised the issue that the firm became aware of the problem. This failure to ensure timely delivery and proper record-keeping led to more regulatory violations.

The firm didn’t stop there. Webull was also found to be in violation of the Vendor Display Rule, which requires broker-dealers to provide customers with consolidated market data from multiple exchanges. Webull had failed to meet this requirement, instead providing market data from a single exchange, which left its customers at a disadvantage when assessing the market.

Additionally, Webull's risk management system was found to be lacking. From September 2021 through April 2024, the firm didn’t have appropriate controls in place to prevent the entry of erroneous orders, another serious misstep in terms of market integrity.

With the $1.6 million fine now behind them, Webull Financial has pledged to implement better systems going forward. The firm has updated its supervisory procedures and begun making the necessary corrections to ensure compliance with FINRA rules. But as Webull’s settlement shows, it's not just about paying the fine, it's about taking a hard look at internal practices and ensuring they meet regulatory standards moving forward.

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