TradeZero America Fined $250k: Influencer Marketing Missteps

TradeZero America, a retail investor trading platform, has agreed to pay a $250,000 fine as part of a settlement with the Financial Industry Regulatory Authority (FINRA). This settlement comes in response to allegations of regulatory violations related to the firm’s use of social media influencers and inaccurate privacy notices provided to customers. The violations reportedly occurred between July 2020 and October 2022.

A List of Violations

FINRA’s investigation revealed that TradeZero America engaged in the practice of paying social media influencers to promote its services. However, the firm failed to ensure that these communications were fair, balanced, and compliant with regulatory standards. Influencer posts often contained exaggerated and promissory statements, which violated FINRA rules.

Plus, TradeZero America did not review the influencer videos before posting them on social media platforms, nor did the firm retain them. The firm also failed to review or retain influencers’ posts made in online interactive electronic forums.

Another violation cited by FINRA was related to TradeZero America’s privacy notices. Between January 2020 and January 2022, the firm provided customers with privacy notices that inaccurately described how their nonpublic personal information would be used. The firm shared sensitive customer information with non-affiliated third parties for marketing purposes without proper disclosure.

In response to the settlement, TradeZero America neither admitted nor denied the findings but agreed to the sanctions, which include the $250,000 fine and a censure. The firm has also revised its supervisory procedures to ensure compliance with FINRA rules. These revisions include mandatory review and approval of social media communications by a registered principal and accurate privacy disclosures.

Not the First Strike

This is not the first time FINRA has taken action against a trading firm for violations related to influencers. In a similar case in mid-March, M1 Finance was fined $850,000 for misleading posts on social media.

The role of financial influencers, or “finfluencers,” has been under increased scrutiny recently. A study from this year showed that average investors trust finfluencers more than their friends or family regarding financial advice. However, regulators like Gerhard Van Deventer, the Divisional Executive of Enforcement at the Financial Sector Conduct Authority (FSCA), warn that the work done by influencers in the financial market can be dangerous for the savings and money of retail traders.

TradeZero America’s settlement is a reminder of the importance of regulatory compliance, particularly in the evolving landscape of social media and influencer marketing in the financial industry.