The Securities and Exchange Commission (SEC) has imposed a $250,000 fine on registered investment advisor Fundrise for allegedly engaging in undisclosed financial relationships with social media personalities and online publishers to attract clients.

Fundrise, headquartered in Washington, D.C., operates an innovative online platform that allows clients to invest in real estate, private capital, and venture capital opportunities.

According to its most recent Form ADV regulatory filing, Fundrise manages a substantial $3.3 billion in assets across three investment companies and 12 pooled investment vehicles.

Alison Staloch, the Chief Financial Officer of Fundrise, expressed satisfaction with the resolution of the matter, stating, “We are pleased to have resolved this matter. Fundrise fully cooperated with the SEC staff in reaching this settlement, which addresses past conduct concerning the firm’s management of content creators.”

Staloch, who previously served as the chief accountant in the Division of Investment Management at the SEC, emphasized her deep understanding of compliance in the industry. She further added, “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.”

Fundrise agreed to the settlement, which includes a censure, without admitting or denying any wrongdoing.

The SEC’s investigation alleges that between February 2016 and December 2021, Fundrise paid over $8 million to more than 200 content creators to promote its investment platform. However, these individuals failed to disclose the necessary documentation and financial relationship required under the SEC’s cash solicitation regulation.

Undisclosed Payments and Lack of Disclosure in Fundrise’s Marketing Practices

The Securities and Exchange Commission (SEC) has accused Fundrise, an investment advisory services and real estate investment platform, of failing to disclose the financial interests of content creators who promoted their services. According to the SEC’s cease-and-desist order, Fundrise clients were not provided with sufficient information about the content creators’ incentives, making it difficult to evaluate their recommendations accurately.

In addition, the SEC claims that Fundrise lacked the necessary policies and procedures to ensure compliance with the cash solicitation rule, which was phased out in December 2020. The cash solicitation rule had prohibited undisclosed payments for endorsements, a conduct that continues to be prohibited under the new marketing rule.

Fundrise allegedly engaged in contracts with online personalities and publishers who would include links to the firm’s website in their blogs, social media posts, and other online content. For each prospective client who clicked on these links and submitted their email address, Fundrise would pay a fee to these content creators. However, the contracts did not require the disclosure of these payment agreements.

The SEC reveals that more than 66,000 new clients were referred to Fundrise by these content creators. Despite their significant contribution to Fundrise’s assets under management, amounting to over $300 million, these clients were unaware of the financial incentives involved. Moreover, the referrals resulted in advisory fees of over $655,000 for the firm.

Fundrise’s marketing practices have raised concerns regarding transparency and client trust. The SEC’s allegations highlight the need for comprehensive disclosure and compliance measures to ensure informed decision-making among potential investors.

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