On March 15, 2013, the Division of Investment Management of the SEC issued an IM Guidance Update to address inquiries regarding whether certain electronic communications posted by mutual funds and other investment companies in real-time forums (such as chat rooms or other social media) should be filed under the filing requirements of Section 24(b) of the Investment Company Act of 1940, as amended (the “Investment Company Act”) or Rule 497 under the Securities Act of 1933 (the “Securities Act”) if such communications are not required to be filed under Financial Industry Regulatory Authority (“FINRA”) Rule 2210. Section 24(b) of the Investment Company Act prohibits certain investment companies from transmitting any “advertisement, pamphlet, circular, form letter, or other sales literature addressed to or intended for distribution to prospective investors” unless the transmitted material is filed with the SEC. In addition, Rule 497 under the Securities Act requires registered investment companies and business development companies to file with the SEC advertisements and other sales material that are subject to Rule 482 under the Investment Company Act. In both cases, these SEC-filing requirements can generally be satisfied by filing the materials with FINRA.
According to the IM Guidance Update, the SEC staff believes that certain interactive content does not need to be filed and stated that “[w]hether a communication need be filed depends on the content, context, and presentation of the particular communication or set of communications and requires an examination of the underlying substantive information transmitted to the social media user and consideration of any other facts and circumstances, such as whether the interactive communication is merely a response to a request or inquiry from the social media user or is forwarding previously-filed content.” The IM Guidance Update provides several examples of electronic communications that the SEC staff believes would not trigger a filing requirement. According to the IM Guidance Update, (i) “[a]n incidental mention of a specific investment company . . . not related to a discussion of the investment merits of the fund,” (ii) the “incidental use of the word ‘performance’ in connection with a discussion of an investment company . . . without specific mention of . . . a fund’s return,” (iii) providing a hyperlink to material that is filed with FINRA pursuant to Section 24(b) of the Investment Company Act or Rule 497 under the Securities Act, (iv) providing a hyperlink to “general financial and investment information” and (v) responding to a social media inquiry with “discrete factual information” without discussing a fund’s merits, would not be viewed as triggering a filing requirement. However, according to the IM Guidance Update, the staff would view interactive content that discusses or promotes a fund’s returns or a fund’s investment merits as triggering a filing requirement.
According to the SEC’s press release regarding the IM Guidance Update, the Division of Investment Management intends to issue additional IM Guidance Updates in the future addressing legal issues relevant to the investment fund industry.