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FINRA Fines Online Brokerage Firm for Misleading Social Media Posts

The Financial Industry Regulatory Authority has censured TradeZero America Inc., an online brokerage firm that provides self-directed trading to retail investors. It fined the firm $250,000 for violations related to misleading social media communications and inaccurate privacy notices provided to customers.

According to FINRA, TradeZero America paid social media influencers to promote the firm between July 2020 and October 2022. These influencers, some with millions of followers, posted content that FINRA stated was not fair and balanced and often made exaggerated or promissory claims about TradeZero America’s services.

Similarly, FINRA alleged that the influencers’ posts often downplayed the risks associated with investing and made misleading claims about the potential for profit. For instance, one influencer described himself as 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.” FINRA emphasized that such communications are considered “retail communications,” as defined by FINRA Rule 2210, and are subject to regulatory standards.

The agency also stated that TradeZero America failed to review the influencers’ videos before they were posted and did not retain copies of these videos. Additionally, the firm did not have a system in place to supervise the content created by influencers, nor did it adequately preserve records of these communications.

Along with the social media violations, TradeZero America was found to have provided inaccurate privacy notices to at least 22,000 customers between January 2020 and January 2022. These notices misrepresented the extent to which the firm would share customers’ nonpublic personal information with third parties. As of January 2022, the firm has updated its privacy notice to correct this issue.

In addition to Rule 2210, FINRA stated that these actions violated several other securities regulations, including FINRA Rule 3110, which requires each member firm to establish and maintain a supervisory system and written procedures to supervise its business proceedings;  and Regulation S-P which requires that companies “provide at the beginning of a customer relationship a clear and conspicuous notice to the customer that accurately reflects the firm’s privacy policies and practices.”

Without admitting or denying the claims, TradeZero America agreed to the censure and fine. The firm has also revised its supervisory system to ensure that all future social media communications by influencers are reviewed and approved by a registered principal before being published.

A FINRA member since 2016, TradeZero America Inc. provides self-directed trading to retail investors through its online portal. Headquartered in Brooklyn, N.Y., the firm has 28 registered representatives at one branch office.

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