Fundrise Advisors, a registered Washington, D.C., investment advisor, yesterday settled for $250,000 allegations that the firm paid social media influencers $8 million to solicit investors without revealing the paid relationship, according to the Securities and Exchange Commission.

At the heart of the issue lay the Investment Advisors Act of 1940’s “cash solicitation rule,” which prohibited firms from paying a cash fee to someone for soliciting clients without disclosing that relationship to the client upfront, giving the prospective client the firm’s brochure at the time of the referral, and providing the client with documentation of the relationship, including the terms of compensation, the SEC said.

While that rule was merged with an advertising rule in December 2020 and the new collective rule renamed the “marketing rule,” an 18-month transition period meant Fundrise was still subject to the cash solicitation rule during the relevant period.

“Fundrise fully cooperated with the SEC staff in reaching this settlement, which addresses past conduct concerning the firm’s management of content creators," said Alison Staloch, CFO of Fundrise and former chief accountant of the division of investment management at the U.S. Securities and Exchange Commission. “I have a deep appreciation for the importance of compliance in our industry. This settlement reinforces the significance of adhering to regulatory requirements and upholding the trust our clients place in us. Fundrise remains committed to the highest standards of compliance and integrity.”

According to the settlement letter, Fundrise, which operates an online real estate investment platform with about $3.3 billion in assets under management, paid more than $8 million to more than 200 social media influencers and online content creators between February 2016 and December 2021.

In the course of this solicitation, Fundrise and the influencers allegedly failed to provide the disclosure and documentation required, the SEC said.

“As a result, Fundrise clients were not fully informed of the content creators’ financial interests in promoting Fundrise’s investment advisory services and real estate investment platform and therefore lacked the information necessary to evaluate the content creators’ recommendation of Fundrise,” the SEC wrote.

The letter stated that in the relevant period, Fundrise-paid influencers referred more than 66,000 new clients to the advisor. Those clients accounted for more than $300 million of Fundrise’s AUM and generated more than $655,000 in advisory fees.

In none of these cases did Fundrise or the influencers disclose and document their relationship to the clients, the SEC said.

“Specifically, Fundrise’s agreements with the content creators did not contain an undertaking by the content creators to perform their duties consistently with the Advisers Act and the rules thereunder,” the letter stated. “The agreements also did not require the content creators to provide to clients at the time of solicitation (1) a written disclosure document describing, among other things, the nature of their relationship with Fundrise and the terms of their compensation arrangement and (2) Fundrise’s brochure.”

The settlement agreement included the provisions that Fundrise cease and desist from further violations and agree to a censure.