## Facts

- Forcerank L.L.C., a Delaware company based in New York, operated mobile contests in which players paid entry fees to predict the relative performance order of 10 securities over a short period.
- Players earned points based on prediction accuracy; top scorers received cash prizes funded from entry fees, with Forcerank retaining 10% of entry fees.
- Participation was open to the general public; Forcerank did not screen for financial sophistication and did not determine whether participants were “eligible contract participants.”
- Forcerank collected users’ prediction data and intended to monetize it by selling it to institutional investors.
- Forcerank promoted the product through press releases, podcasts, and social media, often describing it as “daily fantasy sports for stocks.”
- The SEC instituted an administrative cease-and-desist proceeding; Forcerank settled without admitting or denying the findings (except jurisdiction).

## Issues

1. Whether Forcerank’s contest arrangements constituted “security-based swaps” under federal securities laws.
2. Whether Forcerank violated Securities Act § 5(e) by offering or selling security-based swaps to non-eligible contract participants without an effective registration statement.
3. Whether Forcerank violated Exchange Act § 6(l) by effecting security-based swap transactions with non-eligible contract participants other than on a national securities exchange.

## Decision

- The SEC found that the contracts with players were security-based swaps because they were based on the value/performance of individual securities and provided for payments contingent on events with financial or economic consequences.
- The SEC found that Forcerank offered and sold those security-based swaps to the public, including persons who were not eligible contract participants, without an effective registration statement, violating Securities Act § 5(e).
- The SEC found that Forcerank effected those transactions off-exchange with non-eligible contract participants, violating Exchange Act § 6(l).
- The SEC ordered Forcerank to cease and desist from causing or committing future violations and imposed monetary relief, including disgorgement, prejudgment interest, and civil penalties, pursuant to the settlement.

## Legal Principles

- The regulatory classification of an arrangement turns on its economic characteristics; labeling a product as a “game” does not prevent it from being treated as a security-based swap if payouts depend on securities performance.
- A contract is a security-based swap where payment obligations are contingent on an event associated with financial or economic consequences and the contract is based on the value or performance of one or more securities.
- Securities Act § 5(e) prohibits offering, buying, purchasing, or selling a security-based swap to a person who is not an eligible contract participant unless an effective registration statement is in place.
- Exchange Act § 6(l) prohibits effecting a security-based swap transaction with or for a non-eligible contract participant unless the transaction is effected on a national securities exchange.
- Opening participation to the general public without verifying eligible contract participant status can trigger liability when the product is a security-based swap.

## Conclusion

The SEC treated Forcerank’s fantasy-style stock-picking contests as retail-facing security-based swaps and concluded that offering and effecting those transactions with non-eligible contract participants without registration and off-exchange violated federal securities laws, warranting a cease-and-desist order and monetary remedies.


In re Forcerank L.L.C., Securities Act Release No. 10232 (S.E.C. 2016)