On January 4th the Securities and Exchange Commission (“SEC”) issued a cease and desist order against an Illinois man, Anthony Fields, posing as a Registered Investment Adviser (“RIA”) who was using his LinkedIn account to scam investors, “offer[ing] more than $500 billion in fictitious securities through various social media websites.”
The same day, highlighting the agency’s focus on enforcement in the ever-evolving world of social media, the SEC issued guidance on an RIA’s use of social media in a new National Examination Risk Alert, Investment Adviser Use of Social Media (the “Alert”), highlighting three areas of concern:
- The need for Compliance policies and procedures concerning social media;
- Third-party content on an RIA’s social media site (and whether “liking” is a prohibited testimonial); and
- Recordkeeping responsibilities with respect to social media.
Social Media Compliance Regulatory Concerns
The Alert gives a list of factors for RIAs to consider in developing an effective compliance oversight program with respect to the use of social media. This includes using sampling or search methodologies to monitor content and communications by employees. Other recommendations include:
- Implementation of “usage guidelines” that lay out appropriate and inappropriate uses of social media, as well as articulation of clear guidelines with respect to acceptable content;
- Establishing appropriate monitoring of social media site posts, including periodic or real-time monitoring; and
- The assessment of information security risks that may be posed by social media sites, particularly protecting sensitive customer and firm proprietary information.
Third-Party Content (Dislike Your Likes)
Third-party postings on an RIA’s social media site, including merely clicking “like,” may be interpreted as an improper testimonial. As described by the Alert, “If, for example, the public is invited to ‘like’ an IAR’s biography posted on a social media site, that post could be viewed as a type of testimonial prohibited by Rule 206(4)-1(a)(1).” Consequently, a conservative approach may be to limit third-party postings and establish notifications to monitor posts real-time.
Recordingkeeping Responsibilities for Social Media
The recordkeeping obligations under the Advisers Act do not distinguish between different types of media. The Alert provides new guidance on factors for RIAs to consider as they adopt recordkeeping policies and procedures for social media, including: determining whether each communication is a required record; establishing employee training programs to educate advisory personnel on do’s and don’ts; and testing to ascertain compliance with social media policies.
RIAs and their employees should take this new and extremely useful guidance to heart as they navigate the world of social media. For additional information, please contact the author at firstname.lastname@example.org.