Investment Advisers: 3 Takeaways from SEC Risk Alert on Social Media Use

On January 4, 2012, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations issued a National Examination Risk Alert on the use of social media by registered investment advisers. Issued the very same day that the SEC charged an investment adviser with offering to sell more than $500 billion of fictitious securities via LinkedIn (see SEC Accuses Adviser of Using LinkedIn to Perpetrate Investment Scam by The Law Offices of Debra G. Speyer), the Alert warns advisers that their “use of social media must comply with various provisions of the federal securities laws, including, but not limited to, the antifraud provisions, compliance provisions, and recordkeeping provisions.”

For your reference, here are three takeaways from the SEC alert:

1. Firms should consolidate overlapping social media policies:

“The staff notes that firms vary in their compliance program approaches to social media, and that many firms currently have multiple overlapping procedures that may generally apply to the use of social media, rather than a single, unified social media policy. The staff expressed concern that these overlapping procedures may create confusion regarding their application to the use of social media by investment advisory personnel and the types of social networking activity that are permitted or prohibited by an investment adviser.” (SEC Publishes Risk Alert on Investment Adviser Use of Social Media by Dechert LLP) 

2. Social media postings and “likes” constitute prohibited third-party communications:

“Specifically, firms should be careful to prevent ‘testimonials’ from being posted on a site. The staff advises that, depending on the facts and circumstances, certain functions on a social media site such as a ‘like’ button could be considered a testimonial under the Advisers Act. If such function cannot be disabled, investment advisers should consider monitoring and removing third-party postings if necessary.” (SEC Issues Guidance On Use of Social Media by Investment Advisers by Foley Hoag LLP) 

3. The recordkeeping obligations of the Advisers Act apply to social media communications:

“The recordkeeping obligations under the Advisers Act do not distinguish between the various types of social media or other electronic communications (discussion boards, chat rooms, instant messages, texts, e-mails). If a firm or its IARs communicate through social media, the firm must ensure that it can maintain all required records to have them easily available for inspection, for the applicable retention period [and] evaluate all of the social media communications to determine whether they are indeed required records under the Advisers Act.” (Investors and Investment Advisers Beware: The Use of Social Media in Financial Services by Meyers & Heim LLP) 


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