Two noteworthy developments in the securities industry emerged this month, one offering relief to broker-dealers and the other serving as a stark reminder of evolving fraud risks.
FINRA Removes Pre-Review Requirement for Negative-Consent Bulk Account Transfer Letters
On February 6, 2026, FINRA issued Regulatory Notice 26-03 announcing a significant procedural change effective April 1, 2026. The self-regulatory organization will no longer require firms to submit draft negative-consent letters for bulk account transfers or assignments to FINRA staff for pre-approval and a “no-objection” determination.
Under the prior framework, firms using negative consent—where customers are deemed to agree to a transfer unless they affirmatively object—were obligated to obtain FINRA’s sign-off before mailing the letters. The new approach eliminates this step, allowing firms to self-assess compliance and proceed directly.
FINRA emphasized that the change may reduce regulatory burden but does not alter the underlying principle that negative consent should be used only in limited, appropriate circumstances. Affirmative customer consent or explicit instruction remains the preferred method for account transfers. Bulk transfers without consent could still violate FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) if not handled properly.
The elimination of pre-review is expected to streamline routine bulk transfers—such as those occurring when a registered representative changes firms or a branch office closes—while placing greater responsibility on firms to ensure letters are accurate, complete, and compliant. FINRA indicated it will continue to examine negative-consent practices during routine inspections and remains available to provide interpretive guidance on novel or complex situations. Firms should use the coming weeks to review and, if necessary, update their bulk-transfer templates, supervisory procedures, and training materials to reflect the new self-certification approach.
Shareholders Sue Ostin Technology Over Alleged $950 Million Deepfake-Fueled Pump-and-Dump Scheme
On February 16, 2026, seven international shareholders filed a securities class-action lawsuit in the U.S. District Court for the Southern District of New York against Ostin Technology Group Co., Ltd. (NASDAQ: OST), a Chinese manufacturer of display modules, along with nine current and former officers and directors. The complaint accuses the defendants of orchestrating a pump-and-dump scheme between April and June 2025 that allegedly inflated the company’s stock price from $0.78 to $9.40 before it collapsed 94% in a single trading session on June 26, 2025, closing at $0.55. The plaintiffs claim collective losses ranging from approximately $10,000.00 to more than $820,000.00 each.
According to the lawsuit, the scheme relied heavily on AI-generated deepfake videos featuring fabricated endorsements attributed to high-profile figures including Goldman Sachs Chief Global Markets Strategist David Kostin, Elon Musk, and Mark Zuckerberg. These synthetic videos were allegedly disseminated through sponsored advertisements on Instagram and Facebook.
The complaint further alleges that co-conspirators received roughly 80 million shares—approximately 75% of the outstanding float—at nominal prices, then used stolen identities of legitimate FINRA-registered representatives and fictitious social-media profiles to lure retail investors into WhatsApp groups promising weekly returns of 15–25%. The U.S. Department of Justice previously unsealed criminal indictments in September 2025 against several participants, alleging more than $110 million in proceeds were laundered through U.S. Treasury ETFs and transferred offshore.
The civil action is in its preliminary stages. However, if the allegations are substantiated, the case would represent one of the most prominent examples to date of generative AI being weaponized to facilitate large-scale micro-cap manipulation and retail investor fraud.
The matter highlights the accelerating intersection of artificial intelligence, social-media advertising, and securities fraud. Broker-dealers and investment advisers may wish to consider enhanced monitoring of sponsored promotions involving low-priced or foreign-issuer securities, client education regarding deepfake risks, and heightened diligence when customers express interest in stocks promoted aggressively through non-traditional channels.