Finfluencers and the Reasonable Retail Investor

University of Pennsylvania Law Review Online, Forthcoming

Santa Clara Univ. Legal Studies Research Paper No. 4560122

15 Pages Posted: 5 Sep 2023 Last revised: 19 Sep 2023

See all articles by Sue S. Guan

Sue S. Guan

Santa Clara University School of Law

Date Written: August 12, 2023

Abstract

Much recent commentary has focused on the dangers of finfluencers. Finfluencers are persons or entities that have outsize impact on investor decisions through social media influence. These finfluencers increasingly drive investing and trading trends in a wide range of asset markets, from stocks to cryptocurrency. They do so because they can provide powerful coordination mechanisms across otherwise diffuse investor and trader populations. Of course, the more influence wielded over their followers, the easier it is for finfluencers to perpetrate fraud and manipulation.

The increase in finfluencing has highlighted a gray area in the securities laws: a finfluencer's statements may not be factually untrue or clearly deceptive, but they can be interpreted as misleading depending on the context and the particular beliefs held by the finfluencer’s social media followers. Moreover, such statements can harm investors who buy or sell based on their interpretation of the finfluencer's activity. In other words, finfluencers can easily profit off of their followers' trading activity while steering clear of the securities laws.

A recent case has narrowed finfluencers' ability to do so. This Piece argues that In re Bed Bath and Beyond provides a path to holding finfluencers accountable even when they have not made clearly untrue statements. In considering materiality, In re Bed Bath and Beyond focuses on the reasonable retail investor. This places primacy on retail investors’ interpretation of social media activity and narrows a gap in securities oversight, demonstrating that existing securities laws can be flexible enough to deter and punish a significant portion of problematic finfluencer behavior. In doing so, it opens a path forward for harmed retail investors to seek redress from careless finfluencers.

Keywords: finfluencer, meme stock, social media, securities litigation, retail investor

Suggested Citation

Guan, Sue, Finfluencers and the Reasonable Retail Investor (August 12, 2023). University of Pennsylvania Law Review Online, Forthcoming, Santa Clara Univ. Legal Studies Research Paper No. 4560122, Available at SSRN: https://ssrn.com/abstract=4560122 or http://dx.doi.org/10.2139/ssrn.4560122

Sue Guan (Contact Author)

Santa Clara University School of Law ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

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