Thanks to a seemingly innocuous Facebook posting by its Chief Executive Officer, Netflix is facing the prospect of the Securities and Exchange Commission bringing a civil action against them both. In July, the CEO cheerfully revealed to 200,000 Facebook followers that Netflix subscribers had watched a billion hours of online videos the previous month. Despite the seemingly trivial nature of this posting, and the wide dissemination it received, the SEC has issued a Wells Notice to Netflix and its CEO, indicating that the Staff is contemplating moving forward with civil action against them for violating Reg FD. While many experts believe the SEC is overreaching, this incident is a stark reminder that Broker/Dealers can face substantial regulatory problems if their associated persons misuse social media in connection with their jobs, and that registered representatives need to refresh themselves on the current state of the law in this area.
FINRA Regulatory Notices 10-06 and 11-39 (the “Notices”) offer guidance regarding associated persons’ use of electronic means to communicate with the public. Such communications are generally subject to the same rules that apply to in-person or written communications, and may constitute “correspondence” (e.g., e-mail), a “public appearance” (e.g., LinkedIn or Facebook), an “advertisement” (e.g., Twitter) or “sales literature” (e.g., Facebook discussions). Among other things, the Notices outline firms’ requirements for recordkeeping, which apply to all communications, and oversight, which differ depending on whether the communication is “static” (e.g., blog postings), or “interactive” (e.g., chat rooms). Static content, like profile and wall information, are considered “advertisements,” that require prior approval by a registered principal. On the other hand, interactive content involving real-time communications does not require such approval. FINRA places the onus squarely on Member Firms to determine into which category employees’ electronic postings fit, and to establish written supervisory procedures and systems to assist them in these determinations.
While social media sites like Facebook, LinkedIn, and Twitter hold great potential for financial services companies, regulatory constraints mean such sites are also filled with great peril. Supervision is key, and firms’ legal and compliance departments need to stay current with both changes in technology and the law. Securities firms should take a hard look at their social media policies, oversight and training, and implement protocols for prepublication review of social media postings by all personnel. As we have learned, even seemingly innocuous posts on Facebook can trigger unintentional regulatory scrutiny that cause needless distraction from running your business.