TradeZero America, Inc., a trading platform for retail investors, has been fined $250,000 by the Financial Industry Regulatory Authority (FINRA) due to regulatory violations related to social media influencer promotions. The Brooklyn-based firm, a FINRA member since 2016, faced allegations of multiple regulatory breaches between July 2020 and October 2022. The settlement addresses issues with the firm’s use of social media influencers and inaccurate privacy notices provided to customers.
FINRA’s investigation revealed that TradeZero America paid social media influencers to promote its services without ensuring the communications were fair, balanced, and compliant with regulatory standards. Influencer posts often contained exaggerated and promissory statements, violating FINRA rules. Additionally, the firm failed to review and retain records of published videos and posts.
“TradeZero America did not review its influencers’ videos prior to their posting on social media platforms, nor did the firm retain those videos. The firm also did not review or retain influencers’ posts made in online interactive electronic forums,” FINRA commented.
Between January 2020 and January 2022, TradeZero America provided customers with privacy notices that inaccurately described how their nonpublic personal information would be used. According to FINRA, the firm shared sensitive customer information with non-affiliated third parties for marketing purposes without proper disclosure.
This is not the first time FINRA has fined a trading firm for influencers’ actions. In mid-March, M1 Finance received a similar penalty, albeit $850,000, for misleading posts on social media.
TradeZero America neither admitted nor denied the findings but agreed to the sanctions, including the $250,000 fine and a censure. The firm has since revised its supervisory procedures to ensure compliance with FINRA rules, including mandatory review and approval of social media communications by a registered principal and accurate privacy disclosures.
Financial influencers, or “finfluencers,” are playing an increasingly significant role in the financial world. A study from this year showed that average investors trust finfluencers more than their friends or family regarding financial advice. Gerhard Van Deventer, the Divisional Executive of Enforcement at the Financial Sector Conduct Authority (FSCA), believes that the work done by influencers in the financial market is dangerous for the savings and money of retail traders.
In related news, FINRA recently fined BofA Securities $90,080 for regulatory violations, including filing untimely or inaccurate notifications with the regulator. Additionally, FINRA charged BofA Securities for failing to maintain an adequate supervisory system. The firm’s filings reportedly did not meet the required regulatory deadlines.
