Court Can Require Social Media Records To Be Produced, But Request Should Be Narrowly Tailored

From Craig McLaughlin's SmartProperty Blog - question before the court was whether a plaintiff could be compelled to produce his entire Facebook account.

Court Can Require Social Media Records To Be Produced, But Request Should Be Narrowly Tailored

FINRA Targeting Social Media

A targeted examination letter from theFINRA has turned up the heat on firms using social media.  According to On Wall Street, the letter makes six requests ranging in scope from a general explanation of social media use to the names and Central Registration Depository numbers of the top 20 producing advisors using social media. As the first broad "sweep" done on social media, it illustrates that FINRA will be holding firms to a higher standard of compliance in this relatively new communication channel, said Jimmy Douglas, director of alliances and industry relations Smarsh,

I am not sure that I agree with Mr. Douglas, who has a financial interest in a "higher standard of compliance" as a director of Smarsh, but this is certainly an indication that FINRA is preparing to conduct examinations, and to file charges, for misuse of social media.

My practice areas all converge at the intersection of the Internet and broker-dealer regulation and regularly advise firms and brokers on the use of the Internet, Twitter, Facebook and LinkedIn. Some of my commentary on social media is here at the blog. We can expect signifcant fines by FINRA for social media violations.  If your firm receives an inquiry from FINRA regarding your use of social media, give me a call at 212-509-6544, or send me an email at mja@sallahlaw.com, and let's see if we can help you avoid those issues.

FINRA Launches Social Media Spot-Checks | On Wall Street

FINRA Wants Your Facebook Account

You read that right, just as the SEC is embracing social media, FINRA wants access to brokers' Facebook accounts.

We all know that an employer's demand for access to an employees Facebook account is illegal in many states, and probably illegal in all. It is simply an outrageous overreaching and an invasion of privacy. But such things do not seem to bother FINRA. FINRA is actively seeking to have its member firms exempted from the laws, all in the name of "investor protection."

According to this article on CNN.com, FINRA wants legislatures to exempt broker-dealers from the privacy ban, and allow firms access to the Facebook accounts of all registered representatives, to insure that they are not posting stock tips or other communications related to their business.

While FINRA denies that it does not want firms to conduct routine surveillance of Facebook accounts, it has declined to comment on specifics as to how it proposes such monitoring to work.

Imagine this - your boss has access to your Facebook account, which gives him access to all of your posts, all of your friends' posts, all of your pictures, likes, etc. Given the flagrant abuses by the firms of their access to business related emails, one can only imagine what they will do with Facebook accounts.

And then of course, since the firm has access, FINRA has access, and once FINRA has your Facebook account, so does the SEC.

So, FINRA wants to give your boss access to your Facebook account. Next they want to monitor your cellphone, your home phone, your personal email. After all, you might mention a stock while talking on your cellphone.

Hopefully this will be shot down before it gains any traction. Once again, brokers need that trade organization that they simply refuse to join, but there are other ways to prevent brokers from using Facebook for illicit purposes, the same methods that are currently in use for cellphones and email.

If anyone has run into an issue with their broker-dealer wanting access to their Facebook or other social media account, I would love to hear from you. All information will be kept strictly confidential. Call me at 212-509-6544 or email me at astarita@beamlaw.com.

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Illinois-Based Adviser Charged by SEC in Social Media Scam

The SEC alleges that an Illinois-based investment adviser offered more than $500 billion in fake securities through social media websites.

“Fraudsters are quick to adapt to new technologies to exploit them for unlawful purposes,” said Robert B. Kaplan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Social media is no exception, and today’s enforcement action reflects our determination to pursue fraudulent activity on new and evolving platforms.”

“More and more, investors are using social media to help them with investment decisions. 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,” said Lori J. Schock, Director of the Office of Investor Education and Advocacy.

SEC Charges Illinois-Based Adviser in Social Media Scam

Why Is the Financial Services Industry Still Lukewarm About Social Media?

It's the regulators of course. Update on the use of social media by financial firms from Financial-Planning.com

Mutual Funds and Social Media

Doug Cornelius has a blog post examing the use of social media by mutual fund companies. I didn't view every example that Doug has collected, but Putnam appears to be doing a pretty good job with Twitter. It looks like they have been at it for at least 6 months, updating with news about the company, webinars and other publicity posts. Now we need the banks to get on board. More>>>

Bad Advice -Ignore FINRA Social Media Guidance

Securities regulation is a big deal for those in the industry. The mix of rules, regulations and regulators is a dangerous web of potential violations, fines and suspensions. But those who are in the industry know that the regulators are serious, that they are looking for violations, and will bring actions for those violations.

Maybe it is a sign of the Madoff times, but I can't help but shutter when I read comments from supposedly educated and experienced people who comment on rules and regulations. We all know that FINRA has released its social media guidelines. And we know that like most topics, there can be more than one opinion on the impact of new pronouncements.

Some think that the guidelines are too vague, and therefore meaningless. The vagueness that they are referring to is a desire to meet two goals - first to insure that new rules and regulations address a wide range of situations, and second, to allow firms to create their own supervisory system to meet the challenges of their particular mix of issues. For the inexperienced, bright line tests are better because they are easier. The experienced prefer principle-based regulation - tell me what you want to accomplish, and I will figure out the best way for me and my firm to get there.

But that claim of vagueness has led to another unfortunate, and potentially dangerous conclusion. From a legal blog today, talking about FINRA's social media guidelines:

Investing blogs seem to be eyeing the rules with a wary eye, but the consensus seems to be something a long the lines of "it's impossible for them to enforce this, and they're probably not going to be too aggressive anyway."

I hope that any financial professional who is guided by that statement has my business card on his desk. He is going to need it shortly.

FINRA is taking this seriously, and is already requesting documents regarding the use of Facebook, LinkedIn and Twitter. It is not impossible for them to monitor the use of social media, they will do so, and will seek sanctions for misuse.

Brokers, Advisers, LinkedIn and Twitter

I was a panelist in January for a webinar on Investment Advisers and LinkedIn. We were all set to go, my slides were all prepared and submitted, and the day before the webinar FINRA released Regulatory Notice 10-06 – Guidance on Blogs and Social Networking Web Sites.

The timing of the release caused me to scramble a bit to re-work my presentation for the webinar, but it all worked out. It was a great webinar, as the other three panelists were experts on marketing and business practices for financial advisers, with significant experience using social media for marketing. A replay is available at InvestmentNews.com.

As to the release itself, there was nothing very surprising, but the guidance from FINRA was very helpful. The most significant part of the release was the discussion of Twitter, and its use by financial professionals.

A basic premise that underlies all of this is that the use of the Internet, in whatever form, is advertising, or a communication with the public, by FINRA and for investment advisers, the SEC as well as the state regulators. FINRA has specific rules regarding advertising and public communications. However, the rules are somewhat convoluted, and sometimes it is not intuitive when you attempt to apply those rules to new technologies.

One basic tenant of advertising rules that is true across the board – advertising and public appearances must be supervised, archived, and stored. And therein lies the challenge for Twitter and other real-time communications.

FINRA had two choices with Twitter – either treat it as a discussion in a chat room, or treat it as a web site. It’s like a chat room, in that it is real-time, but it is also permanent and lasting, like a web site. The difference is significant, since a web site requires pre-approval by the firm, and a filing with FINRA. A chat room discussion does not require pre-approval or filing. Both require archiving and storage.

For brokers and compliance departments, the distinction is not important; the question is how do you want me to treat these communications? Without guidance, most firms will do what was done with email – they will ban it.

Fortunately, FINRA’s approach to real-time social media, which includes Twitter, Facebook status updates and LinkedIn network updates, is reasonable, and workable. FINRA was faced with two choices, but adopted a third choice – treat tweets and similar posts like email.

Tweets and updates are not like emails from a regulatory perspective, since FINRA has always treated one-on-one emails and one-to-many emails differently, but kudos to FINRA for taking a reasoned and practical approach. The release states that firms may adopt supervisory procedures similar to those outlined for electronic correspondence (email) as set forth in Regulatory Notice 07-59. That notice provides that firms may employ risk-based principles to determine the extent to which the review of incoming, outgoing and internal electronic communications is necessary for the proper supervision of their business.

Allowing firms to treat tweets like email, and permitting firms to decide the best practice for their own business model, is a significant step. Some firms will continue to ban tweets, but others will use software similar to that used to monitor email, and allow their brokers to use Twitter.

This will require firms to adopt written supervisory procedures and train and approve brokers who are going to use social media, and the modification of the software that is used to monitor emails, but that is reasonable, once the software vendors upgrade their systems.

Writing the procedures and providing the training in the newest electronic communications methods may not be a simple task for some firms. However, Twitter has proven itself to be an excellent communications and marketing platform, one that innovative firms, and their brokers, will benefit from.

My next post will deal with LinkedIn and financial professionals. One heads up – think about recommendations and third party links!
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Mark Astarita, Esq. is a securities attorney who represents financial professionals nationwide on all aspects of their business and compliance needs. He has been online for over 20 years. Follow him on twitter at www.twitter.com/astarita

FINRA Releases Social Media Guidance For Brokers

FINRA released its Regulatory Notice on Communications with the Pubic Through Social Networking Web Sites today, a full month ahead of schedule. The notice will undoubtedly become the standard by which firms, and FINRA, will gauge compliance in the use of sites such as LinkedIn, Facebook and Twitter. While some firms may still prohibit the use of these sites, others may take some level of comfort in the release, and permit limited use of these sites by registered persons. It is Regulatory Notice 10-06.

I am a panelist on a webinar tomorrow, Advisers and LinkedIn: What you can, cannot and should be doing - and will be discussing the implications of the Notice. The webinar is free, and registration information is available at
http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20100110/STATIC/100119998