SEC offers social media tips for investors | Causes, Not Just Cases®

The Securities Exchange Commission (SEC) launched into 2012 with a newfound online prowess. In the first week of the New Year, the agency brought down a fraudulent online scheme, then leveraged the event to give advice to investors who use social media.

On January 4, the SEC charged investment advisor Anthony Fields and his affiliates with selling $500 billion of fraudulent securities through LinkedIn and other social media websites. Fields was accused of providing false and misleading information about clients, assets under management and his firm’s business history. Among other things, Fields allegedly lied on forms he filed with the agency by claiming to have $400 million in assets under management when, in reality, he had $0. The SEC additionally charged Fields with violating record keeping and compliance regulations.

The SEC used the buzz about disconnecting Fields from LinkedIn as a platform to broadcast two new investor bulletins on the potential dangers of social media. The new and proactive tone from the SEC might be interpreted as an effort to show that it is a relevant watch dog, if not a leader, in web 2.0.

The first SEC investor bulletin is titled Social Media and Investing – Understanding Your Accounts. The alert provides simple, yet powerful, considerations to ensure navigating social media does not sink an investor’s account. Listed below is a summary of the main themes:

  • Privacy Settings: Mind your privacy settings when establishing an online account. Do not assume default settings are the most private option.
  • Biographical Information: Limit the amount of personal information provided. Unless a required and legitimate field, consider not sharing personal information.
  • Account Information: Never communicate about account information on social media sites. For example, professional advisors will not give you sensitive account information via your Facebook page; a client should respond in kind. Do not assume an advisor’s social media page is firm-sponsored.
  • Friends/Contacts: Be wary of accepting friend requests from financial service providers, especially those with which you have no relationship.
  • Site Features: Before you post, consider all the possible people who may be able to view your message.
  • Password: Pick “strong” passwords and change them often. Do not use family and pet names for passwords. Consider a mix of upper and lowercase letters and symbols.
  • Public Computers: Avoid doing personal business on public computers.
  • Links: Think before you click. Check to see whether link names have the same url address as the intended site.
  • Mobile devices: Password protect phones, tablets and other mobile devices.

The second SEC investor bulletin, Social Media and Investing – Avoiding Fraud, also provides self help tips for investors. Here is a summary of its main points:

  • Be wary of unsolicited offers to invest.
  • The old adage of “if it sounds too good to be true” is especially relevant online. For example, the promise of being 100% safe or guaranteed returns are common red flags.
  • Beware of Affinity Fraud. Do not make investments solely on the recommendation of a member of an organization that you support.
  • Ask questions, be skeptical and thoroughly investigate the investment.
  • Know some of the common investment scams found on social media:
    • pump-and-dump schemes or market manipulations
    • fraud using “research opinions,” online investment newsletters and spam blasts
    • high yield investment programs
    • internet-based offerings

Investors are encouraged to read the bulletins in their entirety, which can be found at the SEC’s Office of Investor Education and Advocacy webpage website. Here’s to safe investing in 2012 and the SEC’s recent thought leadership on social media.

Authored by David Abel, a Motley Rice attorney from 2010 to 2016.