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Think before You Tweet

For RIAs, the SEC rules require a little more interpretation, noted Bernstein. The Commission has advertising rules under the Investment Advisers Act of 1940, which apply to online communication, but has not spoken to the issue of social networking specifically (see "Walking A Fine Line”). Investment advisers usually have to be more concerned about recommendations on their profile, such as the testimonial feature on LinkedIn. Meanwhile, while FINRA doesn’t outlaw testimonials, typically a broker/dealer would require prior approval anyway, Bernstein said.

The SEC would take the position that advertising is advertising regardless of the medium, said Steve Scholes, partner at the law firm McDermott Will & Emery in Chicago. The problem could arise in which a well-meaning employee of a firm does not think communication is advertising but it is seen as advertising to an SEC enforcement lawyer. Given the rapidity of Internet communication “it would be very easy to slip very unknowingly … into making communications that constitute advertising without realizing it,” he said.

Compliance concerns aren’t necessarily better or worse among different social networking platforms; they are just different, said Bernstein. Some sites, such as Twitter, do promote more spontaneous thoughts.“That sort of free and unfiltered way of communicating gives attorneys a heart attack,” said James McGovern, vice president of Consulting Services at Corporate Insight, a marketing research and consulting firm.

Of course, most of the regulatory perspective is gleaned from what experts see in existing, generic rules from which there hasn’t been enforcement action. Until there are lawsuits to shape some of the landscape, no one really knows, said Mark Hoffman, partner and chair of the Public Company and Corporate Governance Practice at DLA Piper law firm in Seattle. He pointed out that the has a lot on its plate, so considering good social media practices is “more preventative at this point.”

“The law and the regulatory environment is really behind the technology,” asserted Scholes. “So how all of this will play out … is really left to be seen.”
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