Los Angeles, CA asked in Stockbroker Fraud for California

Q: I developed an algorithm for stocks. It tells you which stock to buy and when. Can I publish these trades in an app ?

I do not have any licenses (7, 63, 65). With the appropriate disclaimer, can I publish these trades in app or newsletter for a monthly subscription fee? If no, would the answer change if I was simply listing the trades I made in my own account (as opposed to providing advice) ? ie....not a suggestion to buy a stock.....but instead a list of stocks I bought, and the rationale behind it?

Any advice on this matter would be so greatly appreciated :)

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1 Lawyer Answer
Kevin Mcbride
Kevin Mcbride pro label Lawyers, want to be a Justia Connect Pro too? Learn more ›
  • Los Angeles, CA
  • Licensed in California

A: The question is really whether the activities identified in your question would fall under the Investment Advisers Act of 1940 (15 USC s. 80b, et seq.) which identifies advisory activities in section 202(a)(11) (15 USC 80b-2(a)(11) essentially as follows:

an investment adviser means any person or firm that:

- for compensation;

- is engaged in the business of;

- providing advice to others or issuing reports or analyses regarding securities.

A person must satisfy all three elements to fall within the definition of “investment adviser." SEC staff addressed these issues in an extensive interpretive release explaining how the Act applies to financial planners, pension

consultants and other persons who provide investment advice. See the 1987 Interpretive Release No. 1092 (https://www.sec.gov/rules/interp/1987/ia-1092.pdf)

Based on the question you asked, and without more information, I suspect that you, my friend, would fall under the definition of an Investment Adviser by selling an app, or selling a newsletter that publishes the results of your own trades using your app. Its not hard to get a license. And if you're smart enough to create the algorithm you identified in your question to pick stocks, you're definitely smart enough to pass a Series 7 or 63 exam!

Finally, if you really do have an app/algorithm that accounts for the numerous nuances involved in trading (not the least of which is front-running by the algos of large investors) you certainly have something people would want to use. Basically, an algo for the little guy.

Good luck!

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