According to a Securities and Exchange Commission probe, Forcerank LLC will pay a penalty of $50K for illegally offering complex derivatives products to retail investors. The company did this via mobile phone games referred to as “fantasy sports for stocks.” Forcerank is settling the case without deny or admitting to the findings that it violated sections of the Securities Exchange Act and the Securities Act.
The SEC’s order said that Forcerank’s mobile phone games involved players predicting the order that 10 securities performed against one another.. Players earned points and sometimes even money prizes according to how accurately they predicted the outcomes. The New York-based company earned 10% of entry fees, as well as developed a data set regarding market expectations that it intended to sell to investors, including hedge funds.
The SEC said that the agreements between players and Forcerank were security-based swaps since they provided for a payment contingent upon an event linked to a possible commercial, economic, or financial result and were determined by individual securities’ values. The Commission also claims that Forcerank LLC neglected to submit a registration statement for a security-based swap offering and did not sell contracts using a national securities exchange. Both are required to make sure that full transparency about a security-based swap offering is provided to retail investors and transactions are restricted to platforms that are under the highest regulation.
It was just last year that the SEC sent out an investor alert warning about fantasy stock trading and other websites that could potentially be breaking federal securities laws. In its alert, the SEC warned about how virtual games that “reference securities could involve a securities- based swap,” and may even at times include the charge of an entry fee to participate in a fantasy stock trading contest to win a prize.
Security-Based Swap
A security-based swap involves any contract, agreement, or transaction whose value is determined by, or “derivative of” the performance or value of another financial product, characteristic, or event.
Our security-based swap fraud law firm represents investors seeking to recoup their losses. Contact Shepherd Smith Edwards and Kansas, LTD LLP today.
The SEC Order in the Forcerank case (PDF)
The SEC Alert warning of Fantasy Stock Trading Websites