According to a story in Investment News, the Securities and Exchange Commission began a sweep of investment advisers’ use of social media and social networking last month.
The story hast a quote from Doug Flynn, an adviser at Flynn Zito Capital Management LLC, that is exactly on target for traditional investment advisers:
“I’d love to start tweeting to the general public once they can clearly tell me what I can and can’t do. However, putting yourself out there too much without specific guidelines is just not worth the risk.”
I don’t think the same is true for private fund managers who will soon have to register with SEC as investment advisers. How does the SEC’s regulation of Web 2.0 affect private fund managers once they register as investment advisers?
Private funds are limited by the prohibition on general solicitation and advertisement. They usually rely on Regulation D to keep from having to register the interests in their funds. Rule 502(c) of Regulation D states that “neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising, including, but not limited to, the following:
1. Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and
2. Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. . . “
The very public nature of social media and social networking sites are going to put them squarely in the box limited by this regulation. Even though there is some ability for a fund manager to use social media under the Investment Advisers Act, that ability is curtailed by the limitations under the Securities Act. Certainly, fund managers and their personnel can use web 2.0 tools for personal reasons and business reasons not related to advertising their firm or its funds. (You will notice that I don’t publish posts about my firm or its funds.)