New FTC Enforcement Action Reminds Fintechs of Consumer Protection Pitfalls

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When it comes to government regulators, the mention of stock trading typically brings the SEC to mind.  But fintech companies should be aware of other regulators, including the Federal Trade Commission (“FTC”) and the Consumer Financial Protection Bureau (“CFPB”), when it comes to the marketing and advertising of trading services and other financial products.  

On December 7, 2020, the FTC filed an action against RagingBull.com, which sells online services related to stock and options trading to consumers, alleging that while Raging Bull claims to offer market tips from experts, it has used deceptive marketing strategies to defraud consumers of over US$137 million.  As one example, the FTC alleges that Raging Bull’s marketing emails unlawfully claimed one of its “self-made millionaire” instructors made nearly US$500,000 in profits by trading stocks related to the COVID-19 pandemic after discovering a “hidden bull market.” 

The FTC’s complaint asserts that Raging Bull markets its services by touting the purported successes of its trading instructors and customers and by claiming support from esteemed institutions, like Harvard Business School.  But, according to the FTC, Raging Bull’s founders incurred substantial and persistent losses as a result of their own stock and options trading activities and their income is, in fact, primarily derived from customers’ subscription fees.  And rather than being invited by Harvard (or any of its affiliates) to speak at the university, as Raging Bull suggests, the company allegedly paid to speak on or near Harvard’s campus for promotional purposes.

The FTC alleges that customers have lost substantial sums of money when investing based on Raging Bull’s advice and alerts.  The FTC further claims that customers who request refunds of their fees are routinely denied refunds and that customers who attempt to cancel the services to avoid recurring charges encounter difficulties in doing so.

The FTC notes that, in a “buried purported disclaimer on their websites,” Raging Bull acknowledges it cannot substantiate its claims that customers are likely to make the advertised profits or income and that it has not independently verified the claims made by customer testimonials.  In the FTC’s view, this is insufficient for consumer protection purposes.

The FTC’s action is an important reminder of the overlapping enforcement jurisdiction of the FTC.  Similarly, the CFPB has also taken recent enforcement actions against fintech companies.  The CFPB has examination and enforcement authority over a number of consumer protection statutes that arise frequently in the provision of financial services to consumers, including the Unfair, Deceptive, and Abusive Acts and Practices Act (“UDAAP”), 5 U.S.C. § 5531, and may enforce the Act against various entities that provide financial services.  On occasion, particularly when the FTC and CFPB both have enforcement authority over an emerging area, the agencies will join forces.  Fintech companies should think not only of the SEC when examining their compliance obligations and building their practices, but should also look to the FTC’s and CFPB’s enforcement authority.  Monitoring novel regulatory enforcement issues as they emerge and building compliant processes can help mitigate regulatory risk.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Danielle Oakley, an O’Melveny Partner licensed to practice law in California, Laurel Loomis Rimon, an O’Melveny Partner licensed to practice law in California and the District of Columbia, Eric Sibbitt, an O’Melveny Partner licensed to practice law in California and New York, and Elizabeth McKeen, an O’Melveny Partner licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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