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Financial Services Law Insights and Observations

Massachusetts targets trading platform for aggressive tactics

Fintech State Issues Broker-Dealer Securities Enforcement Fiduciary Duty


On December 16, the enforcement section of the Massachusetts Securities Division filed an administrative complaint against a broker-dealer online trading platform alleging the company violated various state laws by using “aggressive tactics” to gain inexperienced investors. According to the complaint, the company, among other things, (i) used advertising techniques, including using young actors, to target younger individuals (with a median customer age around 31 years old) with little to no investment experience; (ii) failed to implement policies and procedures that were “[r]easonably [d]esigned to [p]revent and [r]espond to [o]utages and [d]isruptions on its [t]rading [p]latform,” resulting in nearly 70 outages throughout 2020; (iii) used “gamification strategies,” such as confetti raining down on the screen after a trade or requiring customers to “tap” a fake debit card to increase their position on the waitlist, to “lure customers into consistent participation” with the platform; and (iv) failed to review and supervise, in accordance with its own procedures, the approval of options trading accounts. The complaint asserts that the company’s tactics failed to adhere to the fiduciary conduct standard required of broker-dealers in the state of Massachusetts since the adoption of amendments in March, with enforcement beginning on September 1. Massachusetts is seeking an injunction, restitution, disgorgement, and administrative fines.

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