SEC said to ‘sweep' advisory firms for social-media info

Feb 14, 2011 @ 3:53 pm

By Jessica Toonkel

The Securities and Exchange Commission is said to have begun a sweep of registered investment advisers' use of social media and social networking, according to officials at an industry compliance firm.

The SEC has asked advisers for documentation on how they use social-media sites such as Facebook, Twitter, LinkedIn, YouTube and Flickr, among others — as well as blogs — according to a compliance alert posted on the website of ACA Compliance Group.

The sweep also focuses on gathering more information about advisers' policies that govern how their employees may — or may not — use social media.

John Nester, a spokesman for the SEC, declined to comment.

In addition, the SEC has requested information about how advisory firms retain records of its employees' use of social media. This includes non-business use of social media and networking sites, according to ACA.

John Nester, a spokesman for the SEC, declined to comment.

The SEC has also asked advisers to provide documentation on third-party use of social media that is maintained by the adviser, as well as information on any social-media training a firm may provide for employees, according to ACA. (Click on the following link for '10 things every financial adviser should know about social media'.)

“ACA believes that the sweep on advisers' use of social media has been undertaken as a means for the SEC to review this evolving area,” ACA wrote in its compliance alert. “As noted, the requests are broad and will enable the SEC to evaluate how prevalent this activity is to registered investment advisers and whether it needs to dedicate further rulemaking and/or examination resources to complete a more regular and thorough evaluation of this activity.”

The agency's sweep is focused on making sure that advisers aren't using these sites to promise investors returns or engage in other illicit activities, said Adelbert Sanchez, a senior principal consultant at ACA. Mr. Sanchez noted that some of its investment adviser clients have recently received notices of the sweep.

More specifically, the agency wants to make sure that unregistered funds, such as private-equity funds or hedge funds, aren't using social-media or social-networking sites to promote their funds, he said.

Under SEC rules, advisers of unregistered funds can't market their funds to the public; using such sites may breach those rules, Mr. Sanchez noted.

“Given the SEC's budget crunch, this is an easy sweep they can do from their own desks,” Mr. Sanchez said. “All they need to do is log on to Facebook and search for the names of unregistered funds.”


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