SEC Issues Alerts on Social Media Risks for Investors and Firms

The Securities and Exchange Commission (SEC) issued two alerts for investors and firms on social media risks.

One of the alerts—“Investment Adviser Use of Social Media”—provides staff observations based on a review of investment advisers of varying sizes and strategies that use social media. In growing numbers, registered investment adviser firms are using social media to communicate with existing and potential clients, promote services, educate investors and recruit new employees.

“As investment advisers increasingly utilize social media to communicate with clients and potential clients, firms need to be mindful of the applicable standards governing those communications,” said Carlo di Florio, director of the Office of Compliance Inspections and Examinations (OCIE).

The alert reviews concerns that may arise from use of social media by firms and their associated persons, and offers suggestions for complying with the antifraud, compliance and recordkeeping provisions of the federal securities laws. The alert notes firms should consider how to implement new compliance programs or revisit their existing programs in the face of rapidly changing technology.

The SEC also issued an Investor Alert titled “Social Media and Investing: Avoiding Fraud”, prepared by the Office of Investor Education and Advocacy. The alert aims to help investors be more aware of fraudulent investment schemes that use social media, and provides tips for checking the backgrounds of advisers and brokers.

A new Investor Bulletin titled “Social Media and Investing: Understanding Your Accounts” contains best practices including privacy settings, security tips and password selection aimed to help social media users protect their personal information and avoid fraud.

“More and more, investors are using social media to help them with investment decisions,” said Lori J. Schock, director of the Office of Investor Education and Advocacy. “While social media can provide many benefits for investors, it also makes an attractive target for fraudsters. The Investor Alert provides some useful tips to help investors look out for securities fraud online.”