The Role of Social Media in the Compliance World

These are the speaking notes from this session at PEI’s Private Fund Compliance Forum 2012.


  • Me
  • Gerry Esposito, Managing Director, CFO & CCO Newbury Partners LLC

Audience Polls

  • Registered with the SEC as investment advisers?
  • How many just registered in the last few months (been Dodd-Franked)?
  • Also registered as broker-dealers?
    (We are not covering FINRA Rules)
  • Retail customers as well as funds?
    (Rules on Supervised persons)

Social Media and Fund Marketing

Investment Advisers Act

  • (Assuming most of the audience is recently registered) the Investment Advisers Act permits marketing and advertising, as long as it is not fraudulent, deceptive or manipulative.
  • Not going to address the SEC rules in advertising in any detail.
  • Assume that publication of information through social media is likely to be considered advertising.

Rule 506

  • Even though advertising permitted under Advisers act, sales of LP interests in your funds are subject to the private placement rules. That means private and no “general solicitation or advertisement.”
  • Twitter, Facebook, or blog posts mentioning your fundraising could violate the ban and blow your private placement.


  • Orders the SEC to lift the ban on general solicitation and advertisement.
  • July 4 deadline for the new SEC rule revising the Rule 506 limitation
  • Also says the ban should apply to all federal securities laws so the nonpublic limitations under IC 3(c)(1) and 3(c)(7) should also be raised

You can, but should you?

  • Expect to attract investors through social media
  • Expect to source deals through social media
  • Examples:
    • Fred Wilson of Union Square Ventures,  A VC blog:
    • Beacon uses Facebook and Twitter for retail property level marketing
  • SEC use of social media – Use twitter to send out updates.


  • First SEC case involving IA and social media was Anthony Fields
  • Used LinkedIn to make multiple fraudulent offers of fictitious bank guarantees
  • That uncovered lots of other deception

Social Media and Employees

SEC Rules

  • SEC National Examination Risk Alert – Investment Adviser Use of Social Media
  • Ban on testimonials
    • Linkedin Recommendations could act as a testimonial
    • Facebook Like button could be considered a testimonial
    • Re-tweeting – is it an endorsement of the message

Recordkeeping Requirements

  • SEC’s recordkeeping requirements are media neutral, so social media is subject to the SEC’s recordkeeping requirements.
  • Unlike email, records are in the cloud and subject to the whims of the platform. They don’t care that you have recordkeeping requirements
  • Third party provider to capture if need to meet record keeping
  • If marketing – need to keep a copy for six years. If sent to 10 or more people
  • If investment advice to a client – need to keep a copy for six years. Not applicable to funds.

Social Media and General Employment Issues

  • NLRB rulings
    • limits ability to discipline employees  for comments made on social media.
    • Example of complaining about company on Facebook – company was wrong to fire
  • Respect of confidentiality
  • Conflicts with fund communications to investors



One Comment