Compliance and Recommendations on Social Networking Sites

View Doug Cornelius's profile on LinkedIn

I am an enthusiast of social networking sites and web 2.0. But I realize they have limitations and dangers. I have been very concerned about the Recommendations feature in LinkedIn. That feature allows any of your connections on LinkedIn to post a recommendation or endorsement about you that appears on your profile page.

At first, that seems great. Since the one view of LinkedIn is that it operates as an online resume, posting recommendations is a smart feature. But what if you are in a regulated industry? Many professions have limitation on what they can say in advertisements and what they can say about their services.

I took a look at how recommendations are regulated for investment advisers and for lawyers. Two areas that affect me the most.

If you a registered investment adviser, you are subject to Rule 206(4)-1:

a. It shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of section 206(4) of the Act for any investment adviser registered or required to be registered under section 203 of the Act, directly or indirectly, to publish, circulate, or distribute any advertisement:

(1) Which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser. . .

It looks like recommendations are prohibited in an “advertisement.” The definition of “advertisement” is broad:

b. For the purposes of this section the term advertisement shall include any notice, circular, letter or other written communication addressed to more than one person, or any notice or other announcement in any publication or by radio or television, which offers (1) any analysis, report, or publication concerning securities, or which is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (2) any graph, chart, formula, or other device to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (3) any other investment advisory service with regard to securities.

Is your LinkedIn profile an “advertisement” under this rule?  If you state that you offer investment advisory services on your LinkedIn profile, then I think it is an advertisement. So you should not have recommendations.

What about lawyers? The first problem is that every jurisdiction has a different set of rules about attorney advertising. You need to take a look at the rules in your jurisdiction.

First look to the ABA Model Rule 7.1:

A lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s services. A communication is false or misleading if it contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially misleading.

Under this rule, you could have a recommendation as long as does not have a material misrepresentation and is not misleading. That gets you into gray areas very quickly.

This is just a model rule. Every state is different. For example, Arkansas[Rule 7.1 (d)], Florida [Rule 4-7.2(c)(1)(J)], Indiana [Rule 7.2(d)(3)], South Carolina [Rule 7.1(d)], and Wyoming [Rule 7.2(h)] all explicitly prohibit any kind of testimonial in attorney advertising. Nevada, Pennsylvania, California, Louisiana, Missouri, New York, Oregon, South Dakota, Texas, and Virginia have limitations on what can be said in a testimonial or a disclaimer that needs to be present.

What do I think? Keep recommendations off your LinkedIn profile.

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Corporate Compliance Fraud in Georgia, Florida and Massachusetts

Just like the Corporate Compliance Fraud in Ohio, Compliance Services is also targeting companies in Georgia, Florida and Massachusetts.

The Daily Citizen is reporting Georgia corporations warned about solicitations. The Georgia Secretary of State issued a warning:

“Several corporations registered with the Corporations Division of the Office of the Secretary of State received a letter from Georgia Corporate Compliance, a private company offering to complete corporation meeting minutes on behalf of registered corporations.”

The Attorney General of Florida also issued a warning:

Over the past several months, the Attorney General’s Office has received numerous complaints against several of these companies. Last week the Attorney General settled a lawsuit against one such company, Corporate Compliance Center, over allegations that the company misled Florida businesses relating to the sale of corporate minutes reports. Two other companies, Corporate Minutes Compliance Service and Corporate Minute Services, were prevented from operating in Florida when the Attorney General’s Office threatened litigation.

Bill Galvin, the Secretary of the Commonwealth of Massachusetts issued his warning:

Recently, an entity calling itself “Compliance Services” mailed solicitations entitled “Annual Minutes Requirement Statement Directors and Shareholders” to numerous Massachusetts corporations. This solicitation offers to complete corporate meeting minutes on behalf of the corporation for a fee. Despite the implications contained in the solicitation, Massachusetts corporations are not required by law to file corporate minutes with the Secretary of State.

Thanks to Corporate Compliance Insights: Compliance Scam Alert in Georgia: Corporate Minutes Hoax Not Limited to Ohio.

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