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SEC Updates Status on Social Media: Tweet with Caution

May 17, 2012
Joint Alert - Corporate and Securities and Litigation Department

In 2011, the SEC undertook an analysis of investment adviser firms’ usage of social media platforms such as Facebook and Twitter. Recently, the SEC has issued guidance in its release titled “Investment Adviser Use of Social Media.”

The SEC’s release underscores the importance for investment advisers (IARs) to develop appropriate policies and procedures to ensure that their (and their IARs’ and solicitors’) use of social media complies with the various provisions of securities laws, including the antifraud, compliance and recordkeeping requirements.

In particular, the SEC believes that investment advisers should have a specific policy in place to address social media concerns, and should not rely on overlapping procedures related to advertisements, and client and electronic communications. A firm’s social media policy should specifically identify those forms of social media that are permitted or prohibited and address the use of social media by solicitors.

In developing a compliance program for the use of social media, investment advisers should pay particular attention to the following issues:

  • Usage guidelines and content standards - A firm should consider the specific risks posed by each type of social media and provide a specific list of approved social media platforms or require certain functions of an approved site to be disabled. For example, the SEC has indicated that it may consider the use of the “like” feature by a client on a social media site an impermissible testimonial. Accordingly, a firm may decide to either require that this feature be disabled, or if the feature cannot be disabled, prohibit the use of the site entirely.
  • Monitoring - A firm should consider the number of social media sites and frequency of posting by its IARs and solicitors in deciding the nature and frequency of monitoring. The SEC indicated that the after-the-fact review of content days after posting may not be reasonable where content can be rapidly and broadly disseminated.
  • Third-Party Content - Firms should also consider the ability of third parties to post to their social media sites. To the extent third party posting is permitted, appropriate policies and procedures should be implemented to ensure, for example, that the firm does not allow the dissemination of misleading information or the posting of a prohibited testimonial.
  • Recordkeeping Requirements - It is likely that at least some communications on social media sites will constitute client communications, advertisements or other records that are required to be maintained by applicable record keeping requirements. In particular, investment advisers should keep their own records, and not assume that the required information will be available on the social media website for the prescribed period of time.

While this alert provides a brief overview of some of the key issues in developing an effective compliance program for social media, there are many other issues to consider. Please contact John Kanan at jkanan@honigman.com or Ray Henney at rhenney@honigman.com, if you have any questions. Honigman also has a Social, Mobile and Emerging Media Industry Group.

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