TradeZero America, a Brooklyn-based brokerage firm catering to self-directed investors, has agreed to multiple sanctions including a $250,000 fine after Finra found it had commited multiple violations related to its social media promotional activities.
According to the AWC letter TradeZero submitted to Finra, the firm engaged numerous social media influencers to promote its services between July 2020 and October 2022. The influencers sent content to their followers on behalf of TradeZero, often making exaggerated claims and promises of returns.
As detailed in the AWC, one influencer suggested that TradeZero was suitable for those aiming to "make billions" and not for "grandmas and grandpas." Another influencer implied that day trading on TradeZero’s platform could effortlessly lead to substantial profits.
Because the promotions didn’t disclose the risks of day trading and hyped up positive results, Finra concluded those communications were neither fair nor balanced.
Finra also found that during the same period, TradeZero failed to review or retain records of the promotional videos and posts made by these influencers.
Aside from not having an appropriately qualified registered principal review the influencers' content before publication, it didn’t set up a system to ensure compliance with the applicable rules. While the firm had written supervisory procedures, Finra said they were lacking as they didn’t include provisions for overseeing social media influencer posts.
Additionally, between January 2020 and January 2022, TradeZero America issued privacy notices to customers that Finra said inaccurately represented how 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.
Because of those actions, Finra said TradeZero violated a raft of regulations, including Finra Rules 2210, 2010, and 4511, as well as Exchange Act Section 17(a), and Regulation S-P of the Securities Exchange Act of 1934.
Aside from 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.
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