The Financial Industry Regulatory Authority announced that it has fined TradeZero America, a retail trading platform in Brooklyn, N.Y., $250,000 for using so-called influencers to post unfair and exaggerated claims to promote the firm on social media sites.
FINRA said TradeZero paid the influencers, or individuals with followings on social media sites, between July 2020 and October 2022 to market the trading platform to their followers.
“Such influencers posted social media communications on the firm’s behalf that were not fair and balanced or that made exaggerated or promissory claims,” FINRA declared in the disciplinary action.
The penalty was part of a consent agreement under which TradeZero neither admitted to nor denied the allegations, according to Finra.
Officials of TradeZero couldn’t be reached for comment.
In a video posted in July 2020, one TradeZero influencer, according to FINRA, told viewers that “he was a "’TradeZero guy’" because the firm was for "’people who want to trade and make billies’" and not for "’grandmas and grandpas who trade, like, one stock.’"
In another example of an exaggerated posts, Finra said, an influencer stated “he was up several thousand dollars without "’even trying,’” by using TradeZero.
“These statements also misleadingly suggested that other individuals could achieve similar success by day-trading on TradeZero America,” Finra said.
TradeZero, which joined Finra in 2016 and has 28 representatives in one branch office, also agreed to be censured by the trade organization, Finra said, adding that the company has rectified a couple of the violations.
Among the other infractions detailed in the filing, TradeZero failed to review or preserve the videos posted by influencers on its behalf or disclose that the posts were advertisements, Finra said.
In addition, the influencers posted communications claiming that TradeZero was a “free web trading platform,” according to Finra. However, certain fees may apply when trading in the platform and the influencers also failed to provide a “prominent link” to the firm’s fee schedule, the regulator said.
TradeZero provided “inaccurate privacy notices” to customers, according to Finra. Between January 2020 and January 2022, at least 22,000 customers opened accounts at TradeZero. The firm told each customer at the time of opening an account that it “disclose[ s] nonpublic personal information only when it is both permitted by law and required for the ordinary course of business.”
“That statement was inaccurate,” FINRA said, noting that TradeZero instead shared customers’ nonpublic personal information, such as customer names, e-mail addresses and Social Security numbers, with non-affiliated third parties for marketing purposes.
Between July 2020 and October 2022, customers opened about 575 accounts using a unique referral link that TradeZero provided to its influencers, including one that had millions of viewers, Finra said. These links allowed customers to open and fund TradeZero brokerage accounts.
The firm also gave influencers graphics to use in their social media posts and “talking points” that highlighted TradeZero’s services and features.
“For example,” said Finra in the filing, “the talking points noted that TradeZero America offered various features related to day-trading, but they omitted any discussion of the risks of day-trading.” In effect, the posts weren’t fair and balanced, the regulator said.
The trading platform also didn’t design or enforce a system to supervise retail communications disseminated on the firm’s behalf, as required by securities regulations, Finra said. However, TradeZero has since revised its supervisory system and now, for example, requires a registered principal of the firm to review and approve influencers' social media posts promoting TradeZero, Finra said. The firm has also implemented systems to preserve records of such communications and their dates of use, the regulator said.