U.S. securities regulators brought charges in a case of alleged fraud utilizing social media, and they also issued two alerts about the perils of social media, for both investors and advisory firms.
The U.S. Securities and Exchange Commission Wednesday charged an Illinois-based investment advisor with offering to sell fictitious securities on the business networking site, LinkedIn. It alleges that Anthony Fields offered more than US$500 billion in fictitious securities through various social media websites, including the use of LinkedIn discussions to promote fictitious ‘bank guarantees’ and ‘medium-term notes’.
According to the SEC’s order instituting administrative proceedings against Fields, he made multiple fraudulent offers through his two firms – Anthony Fields & Associates (AFA) and Platinum Securities Brokers. It alleges that he also provided false and misleading information concerning AFA’s assets under management, clients, and operational history through its website and in SEC filings. And, it says that Fields failed to maintain required books and records, did not implement adequate compliance policies and procedures, and held himself out to be a broker-dealer while he was not registered with the SEC. The allegations have not been proven.
Additionally, the SEC issued two alerts highlighting the risks investors and advisory firms face when using social media.
In the alert directed at advisors, the SEC highlights the results of its recent reviews of firms’ use of social media. It notes that while many firms have policies and procedures within their compliance programs that specifically apply to the use of social media, there is a good deal of variation in those policies.
“The staff noted that many firms have multiple overlapping procedures that apply to advertisements, client communications or electronic communications generally, which may or may not specifically include social media use. Such lack of specificity may cause confusion as to what procedures or standards apply to social media use,” it says. “Many procedures were also not specific as to which types of social networking activity are permitted or prohibited by the firm and many did not address the use of social media by solicitors.”
The alert provides guidance on the sort of factors that firms should consider when designing a compliance program for social media communications. It addresses the issue of the third-party content, also noting that firms’ policies and procedures governing such third-party postings tend to vary. And, it highlights firms’ record-keeping responsibilities.
“As investment advisors increasingly utilize social media to communicate with clients and potential clients, firms need to be mindful of the applicable standards governing those communications,” said Carlo di Florio, director of the Office of Compliance Inspections and Examinations.
The SEC also issued an alert targeting investors, which it says aims to help investors be better aware of fraudulent investment schemes that use social media, and provides tips for checking the backgrounds of advisors and brokers. It sets out best practices for investors, including advice on privacy settings, security tips, and password selection aimed to help social media users protect their personal information and avoid fraud.
“More and more, investors are using social media to help them with investment decisions. While social media can provide many benefits for investors, it also makes an attractive target for fraudsters. The investor alert provides some useful tips to help investors look out for securities fraud online,” said Lori Schock, director of the Office of Investor Education and Advocacy.