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SEC Says Stock-Picking App is an Illegal Security-Based Swap


The SEC shuttered and fined a phone-app security ranking game marketed as “Fantasy Sports for Stocks” because the game entries constituted security-based swaps.  The game required entrants to pay a fee to rank how 10 securities would perform over a one-week period.  Entrants won points and cash prizes for accuracy.  According to the SEC, the respondent wanted to collect and sell data about market expectations.  The SEC maintains that the entries constituted illegal security-based swaps because they were sold without a registration statement, not on a securities exchange, and without ensuring that the buyers were eligible contract participants.

OUR TAKE: The Dodd-Frank Act significantly expanded the definition, and regulation, of security-based swaps.  Even stock-picking games with a prize payout have been swept under the SEC’s regulatory supervision.


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