Risk & Compliance

SEC Fines ‘Fantasy Sports for Stocks’ Company

Forcerank's stock-rating games were not a "skill-based contest" but security-based swap offerings subject to Dodd-Frank's rules, the SEC says.
Matthew HellerOctober 14, 2016
SEC Fines ‘Fantasy Sports for Stocks’ Company

The operator of a mobile phone app that allowed users to make “fantasy stock” picks has been charged with illegally offering security-based swaps.

The Forcerank app has been described as “fantasy sports for stocks,” offering contests in which players would rank a group of stocks or exchange traded funds based on expected performance over the upcoming week.

But according to the U.S. Securities and Exchange Commission, the games violated provisions of the Dodd-Frank financial reforms that were intended to ensure information about a swap offering is fully transparent to retail investors and swaps are limited to platforms subject to the highest level of regulation.

In an administrative order, the SEC rejected Forcerank LLC’s claims that its games were merely a “skill-based contest,” finding the company failed to file a registration statement for what constituted a security-based swap offering and failed to sell its contracts through a regulated exchange.

Forcerank, which cancelled the contests after meeting with SEC staff, agreed to pay $50,000 to settle the charges.

“The Dodd-Frank Act sought to bring security-based swaps activity out of the shadows, including when it involves retail investors,” Michael Osnato, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, said in a news release. “We will continue to vigilantly scrutinize the market for improper offerings of complex security-based swaps that ignore the required safeguards to protect retail investors.”

Forcerank’s parent company, Estimize, collects and sells data about securities and trading and, according to the SEC, had been hoping to sell data it gleaned from Forcerank to hedge funds and other investors.

In a recent interview, Estimize co-founder Leigh Drogen told Benzinga that “the buy, sell, hold rating system” used by sell-side investment banks to rate stocks was “bogus.” Forcerank players rated stocks relative to each other and, according to Drogen, the game was “completely legal … because it’s not a derivative.”

By early June, the SEC said, Forcerank had run about 240 paid contests, receiving about $16,885 in entry fees and paying about $15,196 in prizes.