TradeZero America Inc., a Brooklyn-based online brokerage firm, has been penalized by the Financial Industry Regulatory Authority in a case involving social media influencers.
According to Think Advisor, TradeZero America agreed to pay a $250,000 fine after it allegedly failed to adequately oversee the content posted by online influencers the firm paid to promote its service.
FINRA said that from July 2020 to October 2022, TradeZero paid individuals with large online followings to promote the firm on social media but did not review the contents of those posts or keep copies of the material as required under brokerage firms’ record-keeping obligations.
“Such influencers posted social media communications on the firm’s behalf that were not fair and balanced or that made exaggerated or promissory claims,” the authority’s letter of acceptance, waiver and consent stated.
For example, one influencer suggested that TradeZero was suitable for those aiming to “make billies” and not for “grandmas and grandpas” who trade one stock. Another influencer implied that day trading on TradeZero’s platform could earn substantial profits without “even trying”. But since the promotions did not disclose the risks of day trading and contained exaggerated and promissory statements, FINRA found those communications were neither fair nor balanced.
It was determined that TradeZero America did not review its influencers’ videos prior to their posting on social media platforms, or retain those videos. The firm also did not review or retain influencers’ posts made in online interactive electronic firms.
Furthermore, TradeZero America did not establish, maintain, and enforce a system reasonably designed to supervise retail communications disseminated on its behalf by its influencers. The firm was found to be in violation of the Securities Exchange Act of 1934 Section 17(a), Exchange Act Rule l 7a4(b)(4), and FINRA Rules 2210(b), 4511, 3110, and 2010. FINRA also said TradeZero America provided customers with privacy notices that inaccurately stated the extent to which the firm would use their nonpublic personal information. The notices claimed that such information would only be shared for business necessities and as permitted by law. However, TradeZero actually shared customer data, including names, email addresses, social security numbers, and birthdates, with non-affiliated third parties for marketing purposes. This was a violation of Regulation S-P of the Securities Exchange Act of 1934 Rule 4 (17 CFR § 248.4) and FINRA Rule 2010.
TradeZero provides self-directed trading to retail investors through its online portal.
Along with the $250,000 fine, TradeZero has agreed to a censure as part of the settlement, without admitting or denying FINRA’s findings. The firm also declared it has updated its supervisory systems and privacy notices to comply with regulatory requirements.
The case originated from a FINRA examination of firms’ practices related to the acquisition of customers through social media channels and the sharing of customer information.
The attorneys at Hyman Cotter PC include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. Our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. If your firm is facing an investigation from a regulatory agency, please contact Hyman Cotter PC at 312-291-4600 or through our online contact form.
