How A 'Fantasy Sports For Stocks' Game Ran Afoul Of The SEC

Earlier this week, the SEC announced that Forcerank LLC, a New York-based company that ran a mobile game it described as “fantasy sports for stocks,” had agreed to pay a $50,000 fine for “illegally offering complex derivatives products to retail investors” through its game.

As per an SEC press release, the company had never filed the registration statement necessary for a security-based swap offering and had failed to offer the contracts it sold via a national securities exchange. Both these prerequisites are compulsory under the Dodd-Frank Act, which seeks to “ensure information about an offering is fully transparent to retail investors and the transactions are limited to platforms subject to the highest level of regulation.”

Related Link: The Stock Market Meets Fantasy Football

Forcerank’s game consisted in investors predicting the relative performance of 10 stocks. The most accurate predictors received cash prizes. However, the company retained 10 percent of the admission fees and procured data on market expectations, which it could then sell to institutional investors.

“Forcerank’s agreements with players were security-based swaps because they provided for a payment that was dependent on an event associated with a potential financial, economic, or commercial consequence and based on the value of individual securities,” the SEC explicated.

It should be noted that back in June of 2015, the SEC had already warned investors about fantasy stock trading and similar practices. Michael Osnato, chief of the SEC enforcement division’s complex financial instruments unit assured the agency would “continue to vigilantly scrutinize the market for improper offerings of complex security-based swaps that ignore the required safeguards to protect retail investors.”

Full ratings data available on Benzinga Pro.

Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.