On January 4, 2012, the SEC charged Anthony Fields, an Illinois-based investment adviser, with offering to sell fi ctitious securities on LinkedIn.14 This case highlights the SEC’s concern with the use of social media by investment advisers and the need for advisers to monitor the use of and adopt policies related to social media.

The SEC attached three alerts on social media usage by advisers to its news release about the charges against Fields. One of the alerts issued was a National Examination Risk Alert issued by the Offi ce of Compliance Inspections and Examinations titled “Investment Adviser Use of Social Media.”15 The alert sets forth Staff observations based on a review of various investment advisers that use social media. The alert is not intended to be a comprehensive outline of all rules that must be complied with or all compliance measures that must be implemented. Rather, the alert reviews concerns that may arise from the use of social media by fi rms and their representatives, and offers suggestions for complying with the antifraud, compliance, and recordkeeping provisions of the federal securities laws.

COMPLIANCE PROGRAM RELATED TO THE USE OF SOCIAL MEDIA

The alert notes that while investment advisers may have overlapping compliance policies that could apply to the use of social media, the lack of specifi c policies and procedures related to social media use may cause confusion as to the standards actually governing social media use. The alert urges advisers to adopt specifi c social media use compliance policies and procedures and includes a list of factors that an investment adviser may want to consider when evaluating a compliance program for the use of social media. These include, but are not limited to:

  • Usage Guidelines. Investment advisers may create fi rm usage guidelines that outline appropriate and inappropriate use of social media;
  • Content Standards. A fi rm may adopt clear guidelines regarding content and the prohibition of specifi c content;
  • Monitoring. Investment advisers may consider how to effectively monitor their social media sites or fi rm use of third-party sites;
  • Approval of Content. A fi rm may consider pre-approval requirements;
  • Firm Resources. A fi rm may consider whether it has dedicated suffi cient compliance resources to monitor social media activity;
  • Certification. A fi rm may consider whether to require its representatives to execute certifi cations confi rming that they understand and are complying with the fi rm’s social media policies; and
  • Information Security. Investment advisers may consider any information security risks posed by access to social media sites. These could include dangers from hacking and other breaches of information security.

THIRD-PARTY CONTENT

The Staff states that investment advisers that allow third-parties to post on their social media sites should consider adopting procedures to address such postings. One risk with allowing third-party posts is that those posts may actually constitute a testimonial in violation of the Advisers Act. For example, the use of the ‘like’ feature on an investment adviser’s social media site could be deemed to be a testimonial if it is an explicit or implicit statement of a client’s experience with an investment adviser or investment adviser representative.

RECORDKEEPING RESPONSIBILITIES

Finally, the alert discusses investment advisers’ recordkeeping responsibilities. The Staff suggests that investment advisers should consider reviewing their document retention policies to ensure the retention of any required records generated by social media use.