With the recent explosion of Twitter and other Web 2.0 venues (i.e. LinkedIn, Facebook, etc), one begins to wonder how these technologies affect advisory firms from a compliance perspective. More and more of late, we see businesses turning to Twitter and similar sites to help increase their business, generate interest and to just simply express their views. What are some of the things that investment advisers need to think about as it relates to Web 2.0 technologies?
Doug Cornelius on his blog Compliance Building posts an interesting article about Compliance and Twitter. Doug says:
If you are a registered representative, you should take a look at FINRA’s Guide to the Internet. The features of Twitter could be considered an advertisement, sales literature, or correspondence. The direct message feature is correspondence. If your Twitter feed is unprotected, each twitter post would be considered an advertisement. If your Twitter feed is protected it would be considered sales literature.
The same standard is going to apply to hedge funds and other privately placed vehicles that are subject to Reg D. Since these entities are not allowed to “advertise” they must be extremely careful about what they (and their employees) post on Web 2.0 sites. Unregistered managers (although that breed of fund manager may not be long for this world), need to be careful not to “hold themselves out to the public as investment advisers.”
If the PM at a hedge fund manager posts a status update mentioning his or her funds, is that deemed to be an advertisement? One can argue that if their profile is set to “private” then technically it is not a public offering, although it is doubtful that all of their Facebook friends are going to be accredited investors.
Clearly the law has not caught up to the technology, but with over 250 million active Facebook users and Twitter growing exponentially, it may be time to start adding some more detail to the regulations. Until that happens however, investment advisers should be extremely careful about what they post to Web 2.0 sites. It is also important that their employees understand the compliance ramifications as well.
I am glad you liked that article.
It’s clear that the SEC and FINRA have not caught up with the world of Web 2.0 from a regulatory standpoint.
One big problem is that Web 2.0 features will change faster than the regulations.
The effect-based rules like FINRA work well, although are perhaps too strict.
The SEC rules for investment advisers, as well as for private funds and public companies, are way behind the time and are not helpful to the consumer nor the company.