Evaluating LLM-Generated Legal Explanations for Regulatory Compliance in Social Media Influencer Marketing

The rise of influencer marketing has blurred boundaries between organic content and sponsored content, making the enforcement of legal rules relating to transparency challenging. Effective regulation requires applying legal knowledge with a clear purpose and reason, yet current detection methods of undisclosed sponsored content generally lack legal grounding or operate as opaque "black boxes". Using 1,143 Instagram posts, we compare gpt-5-nano and gemini-2.5-flash-lite under three prompting strategies with controlled levels of legal knowledge provided. Both models perform strongly in classifying content as sponsored or not (F1 up to 0.93), though performance drops by over 10 points on ambiguous cases. We further develop a taxonomy of reasoning errors, showing frequent citation omissions (28.57%), unclear references (20.71%), and hidden ads exhibiting the highest miscue rate (28.57%). While adding regulatory text to the prompt improves explanation quality, it does not consistently improve detection accuracy. The contribution of this paper is threefold. First, it makes a novel addition to regulatory compliance technology by providing a taxonomy of common errors in LLM-generated legal reasoning to evaluate whether automated moderation is not only accurate but also legally robust, thereby advancing the transparent detection of influencer marketing content. Second, it features an original dataset of LLM explanations annotated by two students who were trained in influencer marketing law. Third, it combines quantitative and qualitative evaluation strategies for LLM explanations and critically reflects on how these findings can support advertising regulatory bodies in automating moderation processes on a solid legal foundation.