Finra Fines Online Brokerage Firm TradeZero Over Misleading Finfluencer Posts
Online brokerage firm TradeZero America has agreed to pay a $250,000 fine to settle allegations that it failed to adequately oversee the content posted by online influencers the firm paid to promote its service.
Brokerage industry self-regulator Finra alleges that from July 2020 to October 2022, TradeZero paid individuals with large online followings to promote the firm on social media but didn’t review the contents of those posts or keep copies of the material as required under brokerage firms’ record-keeping obligations.
Finra considers those posts retail communications from the firm, which means they are subject to the same rules governing more conventional advertising, including the requirement to present fair and balanced information and avoid misleading content.
Finra said that TradeZero netted about 575 new clients through its influencer campaign but failed to ensure the social-media posts complied with the rule governing communications with the public.
TradeZero settled the allegations without admitting or denying misconduct. The firm didn’t immediately respond to requests for comment.
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The question of how advisory and brokerage firms can engage with social-media stars to promote their services has become a significant concern for regulators as they struggle to navigate issues around when an individual posting online is offering investment advice that should be regulated, the disclosures made by firms that pay influencers for promotion, and whether those messages are misleading to investors.
Finra says it began its investigation of TradeZero while it was conducting a broader review of brokerages’ “practices related to the acquisition of customers through social-media channels and the sharing of customer information.”
In addition to the alleged supervisory failures, Finra said that TradeZero issued its clients privacy notices that understated the extent to which the firm used their private information, amounting to a violation of Regulation S-P, the federal rule on safeguarding investor information.
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TradeZero supplied influencers with unique links to embed in their posts that would click through to a page where investors could open and fund a trading account, according to a letter describing the settlement. Finra says that TradeZero would furnish influencers with talking points and graphical content promoting various features of the platform, including its day-trading capabilities, but there was no mention of the risks associated with aggressive, high-volume trading strategies.
“TradeZero America’s influencers created social-media posts promoting TradeZero America that were not fair and balanced, as they did not discuss the risks of investing,” Finra says, noting that some content included “exaggerated and promissory statements.”
One influencer allegedly told his audience that he was several thousands of dollars ahead without “even trying.”
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Some posts referred to TradeZero as a free trading platform, omitting that fees can apply, and failing to disclose that the posts were advertisements, Finra alleges.
The regulator also cites TradeZero for failing to set up a formal supervisory program designed to comply with all the requirements associated with communications with the public. Finra says TradeZero didn’t preapprove influencers’ posts, didn’t review their contents after they were published, and didn’t retain copies as required under firms’ record-keeping obligations.
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