TradeZero America has consented to a $250,000 settlement to resolve claims of inadequate oversight related to promotional content by paid online influencers.
According to the brokerage industry self-regulator Finra, from July 2020 to October 2022, TradeZero engaged influencers with significant online followings to advertise on social media without reviewing the posts or retaining copies as mandated by record-keeping regulations for brokerage firms.
Finra treats such posts as retail communications, subjecting them to the same regulations that apply to traditional advertising. This includes the necessity for fair and balanced information and the prohibition of misleading content. Despite gaining approximately 575 new clients through this influencer campaign, TradeZero did not verify that the social media posts adhered to public communication regulations.
TradeZero has settled these allegations without either admitting or denying the misconduct and has not provided comments on the matter.
Regulators are increasingly scrutinizing how advisory and brokerage firms use social media influencers for promotion, given the challenges in determining when an online post constitutes regulated investment advice, ensuring proper disclosures, and preventing misleading investor communications.
During a broader examination of brokerages’ customer acquisition and information sharing practices via social media, Finra initiated its investigation into TradeZero. The regulator also found that TradeZero issued privacy notices to its clients that downplayed the extent of personal information usage, breaching Regulation S-P, which governs the protection of investor data.
TradeZero provided influencers with unique links for embedding in their posts, directing traffic to a site where users could open and fund trading accounts. Although influencers received guidelines and graphical content emphasizing features like day trading, there was no mention of the associated risks of such high-volume trading strategies.
Finra pointed out that the influencers' posts promoting TradeZero were neither fair nor balanced, as they lacked risk discussions and sometimes included exaggerated claims. For example, one influencer claimed to have made thousands of dollars effortlessly.
Moreover, some posts misleadingly described TradeZero as a free trading platform without clarifying applicable fees or disclosing the promotional nature of the posts.
Finra criticized TradeZero for not establishing a formal supervisory framework to ensure compliance with public communication requirements. The regulator highlighted that TradeZero did not preapprove the influencers’ posts, review their content post-publication, or retain copies as required by brokerage record-keeping standards.
