The Securities and Exchange Commission’s recent review of the investment adviser registration threshold could have significant consequences for thousands of registered investment advisers (“RIAs”). If the SEC ultimately raises the assets-under-management (“AUM”) threshold required for federal registration, many advisers currently registered with the SEC could be required to withdraw their federal registrations and return to state regulation.
Although no formal rule proposal has yet been issued, SEC leadership has publicly questioned whether the current registration framework—largely unchanged since 2012—continues to reflect the division of regulatory authority contemplated by Congress.[1] For mid-sized advisers, the possibility of a higher registration threshold presents substantial compliance, operational, and business risks.
Under Section 203A of the Investment Advisers Act of 1940, advisers generally are prohibited from registering with the SEC unless they manage sufficient regulatory assets under management or otherwise qualify for an exemption. Following the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress shifted many mid-sized advisers from federal oversight to state regulation by increasing the registration threshold from $25 million to $100 million in AUM.[2]
Today, advisers generally become eligible for SEC registration at approximately $100 million in regulatory assets under management and are generally required to register with the SEC once they reach approximately $110 million.[3] Advisers below those levels typically are regulated by one or more state securities regulators.
Why the SEC Is Reconsidering the Threshold
On April 8, 2025, then-Acting SEC Chairman Mark Uyeda announced that SEC staff had been directed to evaluate whether the current registration threshold remains appropriate.[4] Uyeda observed that the number of SEC-registered investment advisers has grown dramatically since the threshold was last adjusted in 2012 and suggested that the balance between federal and state oversight may warrant reconsideration.[5]
The rationale behind a potential increase is straightforward. The SEC’s examination and enforcement resources are finite, and federal regulators may conclude that those resources should be focused on larger advisers with broader national operations, while smaller and mid-sized firms are supervised primarily by state securities regulators.[6] While the SEC has not identified a specific replacement threshold, industry observers have speculated that any increase could be substantial.[7]
History Suggests the Impact Could Be Significant
The last major shift in adviser registration occurred following Dodd-Frank. When Congress increased the federal registration threshold from $25 million to $100 million in AUM, thousands of advisers were required to transition from SEC oversight to state regulation. SEC estimates at the time indicated that more than 3,000 advisers would move from federal to state registration.[8] Importantly, advisers generally were not permitted to remain SEC-registered simply because they had previously qualified for federal registration. Firms that no longer met the applicable threshold were required to withdraw their SEC registrations and register with the appropriate states.[9] If the SEC adopts a higher threshold today, many currently SEC-registered advisers could face a similar transition.
1. Multiple State Registration Obligations
One of the principal benefits of SEC registration is the ability to operate under a largely uniform federal regulatory regime. Advisers that lose eligibility for SEC registration may find themselves subject to registration, examination, and reporting requirements in multiple states.
Although NASAA and state regulators have worked to harmonize certain requirements, significant differences remain among state regulatory programs, filing requirements, examination practices, and enforcement priorities.[10] For firms serving clients across numerous jurisdictions, managing multiple state registrations can create substantial administrative burdens and increased compliance costs.
Many SEC-registered advisers have built compliance programs around federal rules, SEC examination priorities, and SEC guidance. A transition to state regulation may require firms to reevaluate compliance policies, procedures, and disclosure practices to address varying state requirements.
State regulators may also place different emphasis on advertising practices, custody arrangements, books-and-records requirements, and supervisory procedures. Maintaining compliance across multiple jurisdictions often requires additional legal and compliance resources.
A large-scale transition from SEC registration to state registration would likely involve significant operational expenses, including but not limited to:
· Preparation and filing of Form ADV amendments; · Withdrawal of SEC registration; · State registration filings and fees; · Revisions to compliance manuals and supervisory procedures; · Updates to client disclosure documents; and · Personnel training regarding state-specific requirements.
For firms operating in numerous states, these costs could be substantial.
Perhaps the most immediate challenge is uncertainty itself. Advisers currently have little guidance regarding what threshold the SEC may ultimately consider or whether any future rule would include transition periods, exemptions, or grandfathering provisions.
Recent SEC regulatory initiatives[11] also suggest that the Commission may be increasingly willing to revisit longstanding assumptions regarding the regulatory treatment of smaller entities. For example, the SEC recently proposed amendments to its rules implementing the Regulatory Flexibility Act (“RFA”), which would significantly expand the number of entities classified as “small entities” for purposes of SEC rulemaking analyses. The proposal acknowledges that many of the Commission’s existing size standards have not been updated for decades and no longer accurately reflect the modern financial services industry.
Although the RFA proposal is unrelated to investment adviser registration, it reflects a broader willingness by the Commission to reconsider regulatory thresholds that have remained largely unchanged over time. That same policy rationale could support a reevaluation of the investment adviser registration threshold established in 2012. Indeed, some industry observers have suggested that if the SEC concludes that its examination and enforcement resources should be concentrated on the largest market participants, the Commission could ultimately consider a threshold as high as $1 billion in regulatory assets under management, effectively returning a substantial segment of today’s SEC-registered advisers to state oversight.
To be clear, the SEC has not proposed a $1 billion registration threshold, and no formal rulemaking has been initiated. Nevertheless, the Commission’s ongoing review of the federal-state division of regulatory authority, coupled with its broader reassessment of regulatory size standards under the RFA, may signal an increased openness to significant structural changes in adviser regulation. As a result, firms near any plausible future threshold face difficulty predicting their long-term regulatory status.
Although no formal rulemaking proposal has been released, advisers should begin evaluating the potential impact of a higher registration threshold. Firms should consider:
· Current and projected regulatory assets under management; · States in which registration would be required if SEC registration were unavailable; · Existing state-law exemptions that may apply; · Potential transition and compliance costs; and · Whether current compliance systems are capable of supporting multi-state regulation.
Advisers near any potential future threshold should also closely monitor SEC developments and consider discussing contingency planning with experienced securities counsel.
The SEC’s review of the investment adviser registration threshold represents one of the most consequential potential regulatory developments affecting mid-sized advisory firms in more than a decade. While the Commission has not yet proposed a rule, the possibility that thousands of advisers could once again be shifted from federal oversight to state regulation is a realistic scenario.
For advisers that have spent years operating under a federal regulatory framework, a return to state registration could bring increased compliance obligations, higher operating costs, and greater regulatory complexity. Firms that begin evaluating these risks now will be better positioned to respond if the SEC ultimately decides to raise the registration threshold.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many investment advisors, financial professionals, broker-dealers, registered representatives, investors and businesses. Attorney Robert R. Boeche can be reached in the firm’s San Diego office at (619) 696-9500.
1. Mark T. Uyeda, Remarks at the Annual Conference on Federal and State Securities Cooperation (Apr. 8, 2025).
2. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 410, 124 Stat. 1376 (2010).
Regulatory inquiries from FINRA, the SEC, the DFPI, or the California Department of Insurance often raise an uncomfortable question for financial-services firms and their personnel: who pays for the employee’s lawyer? Under California Labor Code section 2802, employers must indemnify employees for necessary expenses incurred as a direct consequence of performing their job duties. In Grissom v. Vons Companies, Inc., the California Court of Appeal held that this obligation can include reimbursement of attorney’s fees incurred by an employee who reasonably retains independent counsel in connection with matters arising from the course and scope of employment.
That does not mean employees automatically get to hire any lawyer they want and send the bill to the company. California courts have emphasized that reimbursement turns on whether the expense was “necessary” under the circumstances. Factors may include whether the employer timely offered competent counsel, whether conflicts of interest exist, and whether the employee reasonably believed separate representation was needed. In other words, if the firm provides qualified, conflict-free counsel, reimbursement for separate counsel may not be required.
While no California court appears to have squarely addressed section 2802 in the context of FINRA, SEC, DFPI, or Department of Insurance investigations, the reasoning of Grissom is highly relevant. Regulatory matters frequently create tension between a firm’s interests and those of its personnel, particularly where regulators are examining both an individual’s conduct and the adequacy of the firm’s supervision. In those circumstances, an employee may argue that independent counsel was reasonably necessary and therefore reimbursable under section 2802.
The lesson for broker-dealers, investment advisers, insurance agencies, and other regulated firms is simple: reimbursement issues should be considered early, before a regulatory inquiry becomes a separate dispute. When regulators start asking questions, firms should evaluate potential conflicts and indemnification obligations before deciding who will represent whom. If your firm is facing these issues, the attorneys at Shustak Reynolds & Partners regularly advise financial-services firms and industry professionals on regulatory investigations, indemnification obligations, and employment-related disputes.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many investment advisors, financial professionals, broker-dealers, registered representatives, investors and businesses. Attorney Joseph M. Mellano can be reached in the firm’s San Diego office at (619) 696-9500.
Social Media Has Changed How Investment Fraud Reaches Investors
Social media has become a major source of investment information. Investors now encounter stock tips, options strategies, crypto promotions, private placements, alternative investment products, and claims about financial markets on TikTok, Instagram, YouTube, Reddit, Discord, Telegram, WhatsApp, X, and other platforms. While some of this content educates investors, much of it does not. When online personalities promote securities, exaggerate returns, hide compensation, impersonate registered professionals, or pressure investors into risky trades, social media content can become investment fraud, securities fraud, or market manipulation.
FINRA reported in December 2025 that it had seen a significant spike in investor complaints involving fraudulent investment groups promoted through social media, including encrypted group chats. The SEC likewise warned investors in February 2026 not to make investment decisions based solely on social media platforms or apps. FINRA also noted that online resources are especially common among younger investors, with most investors under 35 citing social media or other online sources for investment information. See FINRA guidance on investing and social media.
For potential clients who lost money after following a finfluencer, online investment group, or social media stock tip, the key question is not whether the communication appeared polished or popular. The key question is whether someone made a material misrepresentation, omitted important facts, failed to disclose a conflict of interest, manipulated a security, or breached duties owed by a broker dealer, investment adviser, brokerage firm, fund manager, or other financial professional.
What Is a Finfluencer, and When Does Online Commentary Cross the Line?
A “finfluencer” is generally a person who uses social media to discuss finance, investing, securities offerings, crypto assets, private funds, investment management, or trading strategies. A finfluencer does not violate securities laws merely by offering general education or expressing an opinion. The legal risk increases when the person recommends a specific security or investment strategy, claims special expertise, touts guaranteed results, or promotes an investment because someone paid them to do so.
Paid promotion presents one of the clearest danger zones. Section 17(b) of the Securities Act generally prohibits a person from promoting a security for compensation without fully disclosing the receipt and amount of that compensation. The SEC Investor Advisory Committee has described this rule as a protection against opinions that appear unbiased but are actually bought and paid for. In other words, a post that looks like independent research may become unlawful touting if the promoter fails to disclose that an issuer, sponsor, investment bank, fund sponsor, or marketing intermediary paid for it.
A finfluencer may also cross the line by spreading false information, omitting material risks, using fake testimonials, claiming access to inside information, or encouraging coordinated trading in thinly traded securities. Those facts can support claims under federal securities laws, state securities laws, the Exchange Act of 1934, the Investment Advisers Act of 1940, FINRA rules, and common-law fraud theories. Depending on the parties involved, they may also lead to SEC investigations, FINRA enforcement actions, Department of Justice inquiries, or private securities litigation.
How Social Media Investment Scams Commonly Work
Many social media scams follow a familiar pattern. A fraudster posts an advertisement or direct message promising exclusive investment advice. The investor clicks the link and gets added to a group chat. The person leading the group may claim to be a registered investment adviser, financial advisor, analyst, senior executive, or assistant to a well-known market figure. Other members of the group may appear to praise the strategy, post screenshots of profits, or urge quick action.
The scam often starts with recommendations involving well-known stocks to build trust. After the investor sees what appears to be early success, the promoter shifts the investor toward a low-priced, low-volume stock, a crypto asset, a private placement, or a trading platform the investor cannot independently verify. FINRA has warned that scammers may instruct investors to open accounts at specific broker dealers, buy shares at particular times and prices, and send screenshots of trades. The activity may push prices up temporarily before the price collapses and investors cannot exit their positions. See FINRA investment group imposter scams alert.
These schemes often resemble pump-and-dump or ramp-and-dump conduct. Promoters create hype, use misleading statements to encourage buying, and then sell into the artificial price increase. Investors who bought after the hype may suffer substantial losses when the market recognizes the truth. The same basic strategy can work in reverse when bad actors spread negative rumors to drive a price down and profit from the decline.
Red Flags Investors Should Not Ignore
A stranger adds you to an investment group chat. Be especially cautious with WhatsApp, Telegram, Discord, encrypted messaging, or unsolicited text messages.
The promoter promises high returns with little or no risk. Legitimate financial professionals discuss risk, liquidity, costs, and downside scenarios.
The person claims to be registered but will not verify identity through official records. Fraudsters often impersonate broker dealers, investment advisers, securities regulators, or well-known financial professionals.
The investment involves urgency, secrecy, or pressure. A demand to act immediately before an opportunity disappears is a classic investment fraud warning sign.
The promoter discourages outside advice. Be wary if someone tells you not to speak with your existing financial advisor, attorney, CPA, or family.
You cannot withdraw money without paying more fees. Advance-fee demands, fake taxes, or recovery fees often signal a fraudulent platform or impersonation scam.
The SEC has also warned that fraudsters may impersonate SEC staff or other government officials through social media or text messages, including by using the SEC seal, real names, or links that appear official. Investors should independently verify any person or firm before sending funds, opening accounts, or following stock tips.
Broker-Dealer and Investment Adviser Liability
Not every case involves an anonymous criminal. Some disputes involve financial services companies, brokerage firms, broker dealers registered with FINRA, asset managers, investment advisers, or fund sponsors that use influencers to acquire clients or promote financial products. In those cases, compliance issues can become central to the legal matter.
FINRA Rule 2210 requires member communications with the public to be fair and balanced and prohibits false, exaggerated, unwarranted, promissory, or misleading statements. FINRA has also taken the position that third-party social media posts can become a firm’s own retail communications when the firm pays for, becomes entangled with, or adopts the content.
The M1 Finance matter illustrates the risk. FINRA found in a 2024 Letter of Acceptance, Waiver, and Consent that M1 Finance paid influencers to promote the firm, that certain posts were not fair and balanced or contained exaggerated and promissory statements, and that the firm failed to review and retain influencer communications. FINRA imposed a censure, an $850,000 fine, and an undertaking requiring remediation. The SEC has brought related enforcement actions in the influencer context, including a 2024 action against Van Eck Associates involving undisclosed influencer-related facts in connection with an ETF launch.
For investors, these actions show why the investigation should not stop with the online personality. A securities litigation attorney may need to determine who paid the promoter, who approved the message, who benefited from the trades, whether a registered financial professional participated, and whether a broker dealer or investment adviser failed to supervise the activity.
What Investors Should Do After Suspecting Social Media Investment Fraud
Investors should act quickly. First, preserve evidence before the promoter deletes it. Save screenshots of posts, advertisements, profile pages, direct messages, group chats, websites, trade instructions, payment instructions, wallet addresses, and withdrawal demands. Preserve URLs, usernames, phone numbers, email addresses, account numbers, and the names of all purported financial professionals.
Second, gather financial records. Brokerage statements, trade confirmations, wire records, bank statements, crypto wallet activity, subscription receipts, tax records, and communications with the platform can help a forensic accountant or lawyer trace funds and calculate losses.
Third, verify registration through official sources such as FINRA BrokerCheck, investor.gov, and state securities regulators. Do not rely on links or documents sent by the promoter.
Fourth, report suspected fraud to the SEC, FINRA, the FBI Internet Crime Complaint Center, and state securities regulators where appropriate. Reporting does not replace a private recovery strategy, but it can help regulators identify patterns and protect other investors.
Finally, consult counsel promptly. Deadlines matter. Statutes of limitation, statutes of repose, FINRA eligibility rules, account agreements, arbitration provisions, and forum-selection clauses can affect whether and how an investor may pursue recovery. A FINRA lawyer or securities litigation attorney can evaluate whether the losses resulted only from market risk or from actionable misconduct by a finfluencer, financial advisor, brokerage firm, investment adviser, fund manager, or other participant in the financial services industry.
Conclusion
Social media can make financial education more accessible, but it can also give fraud a professional appearance and an enormous audience. Finfluencers cross the line when they move from education or opinion into misleading promotion, undisclosed compensation, impersonation, market manipulation, unsuitable recommendations, or other securities law violations.
Investors who lost money after following social media stock tips, paid promotions, investment group chats, or finfluencer recommendations should preserve evidence and seek advice promptly. A law firm with experience representing investors in investment fraud, securities fraud cases, FINRA arbitration, securities arbitration, mediation and arbitration, and related securities litigation, such as Shustak Reynolds & Partners, P.C., can help identify responsible parties, assess claims, and pursue available dispute resolution options.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many investment advisors, financial professionals, broker-dealers, registered representatives, investors and businesses. Attorney Mahdi M. Ibrahim can be reached in the firm’s San Diego office at (619) 696-9500.
