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FINRA cracks down on firms’ use of social media influencers
RICHARD WEINER
Technology for Lawyers
Published: July 19, 2024
The Financial Industry Regulation Authority’s (FINRA) Enforcement Division recently came to an agreement with TradeZero America (TradeZero) following a longer than two-year investigation into the brokerage’s relationships with social media influencers.
The agency and the firm, which is a self-directed trading platform for retail trading investors (otherwise known as “suckers”) agreed to a $250,000 fine for the company’s failure to control various social media influencers’ hawking of their business.
In doing so, the agency said that the trading platform had filed to provide, maintain and enforce a reasonable designed supervisory system for its influencers’ (salespeople, basically) social media posts and had filed to keep records thereof.
FINRA considers social media influencer messages/posts to be “retail communications” from a company if said company supplies the social media influencer with what looks like the directions or materials that an employee or salesperson would have under the same scenarios.
In the TradeZero case, the company supplied each influencer with graphics and talking points in ways to make the company’s business attractive to potential TradeZero users. The target customers were people who were interested in day trading (“suckers”). Apparently, the talking points and graphics supplied to the influencers from TradeZero highlighted the cool millions you could make day trading with no need to know stock trading fundamentals, but neglected to note that, sometimes, things might not work out for the day trader. As if.
Among statements from various influencers were claims that TradeZero was zero-cost (not true), that day trading on the platform was for people who wanted to make “billies,” and that one influencer was “up thousands without even trying.” False statements all, and the agency found that these and other statements were unfair and misleading.
TradeZero also did not have clear and conspicuous privacy policies.
In addition to the settlement amount, TradeZero agreed to implement controls over their social media influencers/sales folks and to changes to its own internal controls to have a company principle review the sales materials that go out to these influencers. Not sure who was approving them before, but we could guess, couldn’t we?
The TradeZero settlement is the third such social media influencer settlement that the agency has gotten recently. Look for more of these, I would think.