IZEA

Kurta Law is investigating potentially unsuitable recommendations of IZEA stock. When companies initiate a stock offering, they must file a document with the SEC called a prospectus. A company’s prospectus describes its business and the risks involved in becoming a stockholder.

Brokers who recommend high-risk investments may be violating securities regulations. Investors who believe their investment in IZEA stock was unsuitably risky for their profile should consider seeking out FINRA arbitration.

Speak to one of our securities attorneys today by contacting our team at (877) 600-0098 or emailing info@kurtalawfirm.com for a no-cost case evaluation.

What is IZEA?

According to the prospectus, IZEA, Inc. (IZEA) is a company offering social media sponsorships (i.e., sponsored content) through the following platforms: SocialSpark, SponsoredTweets, Staree, and WeReward. The company also maintains its legacy platforms, InPostLinks and PayPerPost.

The prospectus states that IZEA connects advertisers with social media creators such as bloggers, who feature its products or services in exchange for money, product samples, and points. Each platform is specialized to certain media (e.g., blog posts, tweets) and the product or service being advertised.

Each of IZEA’s platforms purportedly provides tools for advertisers managing workflows, payment processing, and maintaining FTC legal compliance, among other features.

The company also runs IZEAMedia, a display advertising network integrated within its other platforms.

2018 Class Action

On May 6, 2018, a class action lawsuit against IZEA alleged that the company made false and/or misleading statements and/or omissions by misreporting revenue from its Content Workflow services as gross profits and vice versa, and by failing to disclose that the company lacked sufficient internal controls. This lawsuit was settled for $1.2 million.

Nasdaq Delisting Notice

On July 6, 2022, the Nasdaq Capital Market notified IZEA that it was no longer in compliance with its requirement that listed companies maintain a closing price of at least $1.00 per share, and was at risk of being delisted. IZEA officially regained compliance on July 6, 2023, following a reverse stock split.

What are the Risks Associated with IZEA?

IZEA’s prospectus describes a variety of risks associated with the company’s financial history, the social media sponsorships industry, and other important factors that investors should take into consideration.

History of Losses

IZEA had an accumulated capital deficit of over $20 million as of June 30, 2012, and states in its prospectus that “our revenue has increased since inception, we have not achieved profitability” and may not be able to achieve high enough revenues to become profitable.

Due to the company’s deficit and cash balances in 2011, IZEA’s accounting firm included a paragraph in its yearly report expressing “substantial doubt” regarding the company’s ability to continue as a going concern.

Risks Unique to SMS Industry

The social media sponsorships (SMS) industry is fairly new and fundamentally dependent on third-party platforms. It comes with special risks of its own:

• Social media networks like Facebook and Twitter may refuse or retract access to their websites by SMS platforms.
• Click-fraud, which occurs when a person or program clicks a link in order to generate a charge normally provided as compensation for hosting that link. For example, an affiliate blog that links to an Amazon listing for a product will receive compensation for each click their links receive. Companies may be cautious to make use of SMS due to potential click-fraud.
• SMS may potentially interfere with a company’s other marketing efforts.

SMS businesses are also subject to FTC rules and other regulatory requirements surrounding word-of-mouth advertising and endorsements. These regulations concern the use of targeted advertising and consumer privacy, among other things. Failure to comply with these rules and regulations could cause IZEA to incur penalties, but could also affect public opinion about the SMS industry as a whole.

Designation as a Penny Stock

At the time of the prospectus, IZEA’s stock was considered a penny stock by the SEC. The stock was not listed on Nasdaq at the time, but instead was quoted on the OTCQB marketplace and traded for less than $5.00 per share.

Penny stocks are subject to special SEC requirements regarding risk disclosures and suitability, and these additional requirements may make some broker-dealers unwilling to deal in penny stocks. These limitations also make it harder for stockholders to sell their shares.

Aegis Capital Corp. Underwriting  

Investors should know that Aegis Capital Corp. served as the underwriter for this offering. Underwriters take on risk in exchange for a fee, which could motivate certain investment banks to underwrite investments that pose too much risk for the average retail investor. Additionally, brokers may have conflicts of interest when they recommend shares that are underwritten by an affiliate of their brokerage firm.

What Can I Do If I Suffered Losses?

If you lost money on your investment in IZEA, our experienced securities attorneys may be able to help. Kurta Law attorneys regularly take on cases of unsuitable investment recommendations and broker misconduct and have a history of winning fair settlements for our clients. Call (877) 600-0098 or email info@kurtalawfirm.com.