In March, FTC filed a complaint against RagingBull.com. Trading services and financial services and education companies with similar offerings must understand the implications, or potentially face a similar outcome. This post attempts to breakdown the basic violations levied against Raging Bull, contrast those actions with some key differences employed by other trading/financial education firms, and offers some key takeaways. Ultimately, the FTC complaint against Raging Bull may indicate no action is necessary or that only a scalpel is needed to refine any existing trading service/education type offerings involving stocks, options, forex, cryptocurrency, etc. But, understanding when “cuts” are necessary is critical to avoiding FTC and/or state law scrutiny.
Raging Bull FTC Lawsuit Violations Summary
- Raging Bull admitted they did not independently verify the claims made by consumer testimonials and had not determined whether those testimonials are typical of consumers using their services. Buried in a purported disclaimer on their websites, Raging Bull admitted they had no substantiation for their claims that subscribers were likely to make the advertised profits or income.
- Raging Bull advertisements and websites were replete with purported testimonials from customers claiming to have made substantial returns on individual trades using Raging Bull’s services.
- Many ads emphasized the purported success of the instructors, discussing highly successful trades, or claiming Raging Bull has made millions in the stock market. A number of ads featured instructors with private jets or in expensive-looking hotels. Consumers were led to believe they could also make significant money by using the instructor’s methods, copying their trades, or both. Raging Bull marketed its services as opportunities to learn from these purported millionaires. Raging Bull also frequently touted examples of the instructors’ winning trades in their advertising. They described Total Alpha as teaching consumers “the options trading strategies that Jeff Bishop has used to make a fortune in the stock market.”
- Ads and advertising campaigns featured testimonials by customers who claimed to have made significant amounts of money using Raging Bull’s services, often boasting about returns of several thousand dollars, or over 100% profit from a single trade. Raging Bull ads claimed the company has “helped thousands of people to become empowered, self-directed traders who know how to take control in any market condition” …presumably using the subject system being promoted.
- Raging Bull claimed its services can be used successfully by people with little or no stock or options trading experience. Numerous consumers viewed the claims about the level of experience, account size, and personal “time” investment needed to be inconsistent with their experiences.
- The disclaimers were directly contrary to Raging Bull’s marketing claims. They used a fleeting video disclaimer stating that … “results are very atypical and you should not expect to replicate them.” Raging Bull also used a webinar to promote its services that included a brief disclaimer at the beginning of the video for approximately 30 seconds, about 15 minutes prior to moderator sharing his personal examples of his wins along with consumer testimonials.
Deceptive Earnings Claims Summary
In numerous instances, Raging Bull represented, directly or indirectly, expressly or by implication, that:
Consumers will or are likely to earn substantial income using its services even if they have little to no experience in securities trading; and
Consumers will or are likely to earn substantial income using its services even if they spend only a short amount of time each day using the service, for example if they are trading while also working full time; and
Consumers will or are likely to earn substantial income using its services even if they start with a very small balance in their brokerage account.
Raging Bull FTC Lawsuit Breakdown For Trading Services
Overall, per the FTC, the materials consisted of “generic trading concepts and technical trading indicators lacking the structure, concreteness, consistency, and clarity required for Raging Bull’s subscribers to use them to generate substantial income through trading.” The Trade alerts caused consumers to incur substantial losses by following Raging Bull trade recommendations. Further, many consumers found that alerts arrive too late or do not arrive at all in some cases. (For example, consumers may receive a buy alert but not a sell alert or may only realize the instructor sold the security when he later claims he made substantial profit on the trade, at which point the security’s price has dropped significantly.) In contrast, providing customers with “alerts” at a set time and are specific to current market conditions as based on the algorithm is likely dissimilar as a clear factual difference.
According to the FTC, Raging Bull did not provide effective strategies that consumers could reasonably use to make market-beating profits. For example, any method based on backtesting and forecasting returns could potentially be an effective strategy. The testing itself could in theory show reliability when implemented correctly under normal market conditions. This could in turn be used to make performance results claims, provided those claims are qualified properly-the viewer must understand these are not actual results and merely based on forecasting at all times while viewing the materials.
Consumers could not make market-beating returns by using Raging Bull’s trade alerts. The instructor trades mentioned in Raging Bull’s advertisements were not representative of the actual results that should be generally expected by using their trading services. In contrast, if there is a genuine belief that backtesting shows that the average trader should indeed make any stated returns, making such claims are not inherently deceptive on its face. Assuming there is this belief, then identifying the specific market conditions that may affect this outcome, or any minimum account balance requirements, for example, should clearly be disclosed to avoid any overall expectation of a profit guarantee. Thus, communicating what could go wrong is an important disclosure that should be made.
Raging Bull claimed that consumers with small balances in their accounts would be able to grow their accounts into a source of substantial income as the Raging Bull traders/instructors claim to have done. The key takeaway here is to clearly and conspicuously note the level of the account balance that is necessary to achieve any stated compounded returns. This disclosure should be clear to the viewer as applicable throughout the offering content through the use of frequent in-line natural disclosures next to or near each specific earnings claim.
The Raging Bull disclaimer was contradictory and not adequately placed. Even if an existing disclaimer is not contradictory, placement matters. Effective proximity has always been the FTC required standard. Using natural in-line disclaimers/disclosures regarding the nature of any forecasting, for example, is the recommended best practice.
New Hampshire Goes After Raging Bull
The state of New Hampshire Bureau of Securities Regulation also filed a complaint against Raging Bull for pawning itself off as an unlicensed Advisory Firm and for deceptive practices generally.
Raging Bull Is An Advisory Firm
The state of New Hampshire clearly went after Raging Bull because of all of the consumer complaints. I do think it is a stretch to consider any trading tool to be an advisory service as a general proposition. Under the broad New Hampshire definition, an argument that some financial/trading education services are an advisory service is able to be made. However, as noted in the complaint, Raging Bull was actually picking individual stocks and advising traders on individual positions in sync with their own traders. In contrast, offering an options call spread strategy or teaching traders how to read charts and using specific positions merely as examples presents a difference. Using a simple credit spread or similar strategy that is automated, in my view, is dissimilar to providing direct investment advice on specific positions. The latter is an advisory service.
Based on the following language taken from the Raging Bull complaint, financial and trading eduction services should avoid offering any kind of advisory type service. Rather, a “predetermined trading pattern” due to the consistency and uniformity of the approach should only be considered.
Raging Bull’s business is specifically designed to motivate subscribers to trade into positions of specific stocks picked by Raging Bull traders, and, knowing that many subscribers will hold positions in the picked-stocks, to trade out of their positions as directed by Raging Bull traders. The advice is not a bona fide publication with regular circulation. Rather, it is connected to the real time trading of the Raging Bull trader’s account and not based on a regular and predetermined trading pattern.
The bottom line is that Raging Bull was giving advice on specific stock positions as an unlicensed advisory service under New Hampshire state law. But, the New Hampshire definition can be used to argue broadly that a financial/trading education service is an advisory service under some circumstances. It is instructive then to evaluate precisely how Raging Bull was advising their subscribers about specific securities. The following basic facts taken from the FTC Complaint describes how Raging Bull conducted its advisory process.
RB traders scan various securities to be placed on a watch list if they show potential for profits that could accumulate in a matter of hours or within a few days. The securities are usually those of small- capitalized companies, whose securities are susceptible to rapid movement. RB also trades in option contracts as well. The watch list is then narrowed to a subset of securities, which show a promise for gains, to be sent as alerts to subscribers. A RB trader will send an alert as to the price or contract terms at which he/she bought and the parameters at which he/she will sell. The traders will livestream their personal trading accounts so the subscriber can see in real time the security’s movement, as well as any adjustments made to the trader’s account. The alerts are meant to teach in real time trading strategies that attempt to predict a security’s movement and its ultimate gain and profit. The alerts are accompanied by training videos and chatroom opportunities for subscribers to learn about trading patterns and what certain trading patterns indicate. RB encourages and expects subscribers to copy or “mirror” the trades of each RB trader.
In essence, Raging Bull was scanning, selecting and alerting its subscribers about specific securities and when to trade them. And they encouraged subscribers to copy the exact trades made by each Raging Bull trader.
New Hampshire Accuses Raging Bull Of Fraud
According to New Hampshire, Raging Bull employed a device, scheme, or artifice to defraud subscribers, or engaged in an act, practice, or course of business that operated or would operate as a fraud or deceit upon another person by publishing images that were false, by making false claims, and by failing to disclose material information to subscribers. Raging Bull touted that Jason Bond, one of the principal owners, was a “millionaire trader,” and its ads often described Bond as a “self-made millionaire trader.” This directly implies that Bond has personally made at least one million dollars in trading profits. However, documentation reviewed by the Bureau did not show that Bond has personally made a million dollars in trading profits and the documentation does not support that he was a “self-made millionaire trader.” Bond broadcasted a presentation about Raging Bull purporting to be sponsored by Harvard Business School or affiliated with Harvard University. But, the presentation had no connection to Harvard University, nor specifically to Harvard Business School, in any official capacity.
Bond broadcasted images intended to give the appearance that he was invited to speak by Harvard University when he was not. Bond and his partners repeatedly touted to subscribers the ability to obtain high profits and acquire wealth by subscribing to and following the Raging Bull trading services by broadcasting images of themselves with private jets. The problem is that neither Raging Bull, Bond or any other defendant owned a private jet. The defendants here also repeatedly broadcast to subscribers through ads and publications the ability to make profits following their trade recommendations, but failed to disclose that they traded ahead of subscribers allowing Raging Bull traders to receive a better price than the subscribers.
FTC & New Hampshire Final Lessons
The Raging Bull FTC & New Hampshire lawsuits are another reminder to avoid images of jets and vacation homes, etc. Financial/trading education services should not engage in any bombastic marketing practices. Removing any references to “insider secrets” and “my grandmother can trade options successfully” would also seem wise. Hyperbole can mislead the viewer by creating an overall expectation that he or she should expect to make money trading using a specific trading system. It isn’t necessarily deceptive (and illegal) on its face, but it is deceptive when in totality it contributes to an impression allowed to be left in the mind of the consumer by not properly qualifying any earnings claims with the realistic ‘generally expected’ results in the depicted circumstances.
Simply avoiding false statements is not the only lesson. The overall expectation by viewers is paramount. For example, if backtesting is used, would he or she understand these hypothetical performance results are based on simulated backtesting? Would they (not should) reasonably expect a guarantee that they would achieve the same results by closely following the system based on stated representations?
The first answer should be yes. There can be no deception by telling a viewer this is what should happen based on the results of the modeling and backtesting if the system is followed. Clearly, making false statements not backed up by actual performance results on average from existing customers is deceptive, however.
The second answer is not as cut and dried. If the viewer reasonably concludes that a guarantee or representation has been made that they will or should reasonably expect to achieve the stated returns, it is problematic. No disclaimer in the beginning (or anywhere else) will cure this. In this case, language must act as a natural type of disclosure that does not reasonably give off this overall impression.
Sufficient account balance minimums should be communicated to achieve the stated average results claims, if any, especially in connection and in close proximity with the compounded returns examples as applicable. No general disclaimer/disclosure placed in the beginning or end of any subject content by itself can cure an otherwise reasonable overall expectation of guaranteed returns. Again, proximity matters. This holds especially true if there are emails and other ancillary marketing materials used to funnel potential customers to a website. Also, always naturally disclose (frequently) the precise market conditions that would disallow any stated results on average (i.e. major S&P corrections that cannot be expected, stimulus talks go unexpectedly south and ruin a short term weekly trade, etc.). Finally, all earnings/results types claims made by consumer testimonials must be independently verified and it must be determined that those testimonials are typical of consumers using the subject services. Earnings/results type claims made through customer testimonials (video or otherwise) that cannot be made directly should not be allowed through customer testimonials. This means that these claims should be reflective of the results subscribers should generally expect overall (under the depicted circumstances) or must be qualified with a disclosure stating what those typical results are, or not made at all.
While this post should clearly not be used as a substitute for professional legal advice, every trading service should at least have an understanding of the Raging Bull violations. This understanding should be the first step in revisiting any existing trading service or educational offering to ensure compliance.