These are the speaking notes from this session at PEI’s Private Fund Compliance Forum 2012.
- Gerry Esposito, Managing Director, CFO & CCO Newbury Partners LLC
- 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.
- 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
- Fred Wilson of Union Square Ventures, A VC blog: http://www.avc.com
- 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 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
- 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