When social networking Web sites such as Facebook, Twitter, and MySpace began, they were devoted to the musings of like-minded individuals–often students–or the following of celebrities, or even, in the case of LinkedIn, professional networking and even job hunting.
But social media have evolved to include marketing, branding, corporate communications of all kinds, and customer relations–even being, in some cases, the easiest way for consumers to reach corporate attention over complaints or problems unresolved through more conventional means. And as they've grown more complex, the need to consider compliance issues for all communications on such media has grown from mere prudence to a necessity.
In January, FINRA issued Regulatory Notice 10-06, "Social Media Web Sites: Guidance on Blogs and Social Networking Web Sites"; while the need for compliance on the Web is not exactly new (in 2003, FINRA declared that if an advisor participated in a chat room on the Internet what he said was "subject to the same requirements as a presentation in person before a group of investors"), as social media have matured, the need to both monitor and control what advisors and employees say online has grown, and the question of how to do so can be challenging to answer.
A white paper by Osterman Research and sponsored by LiveOffice points out that many of the communications issued on social media contain business records, which are subject in the case of government to sunshine laws and of course within the financial industry to compliance. Advisors may not necessarily think of a blog posting or a tweet as a business record, but, according to a white paper by Socialware, "The Companion Guide to FINRA/SEC Social Networking Compliance," it can be considered advice or marketing material, depending on the content and the number of people it goes to. Information on publicly available Web sites, says the white paper, are considered advertisements; password-protected sites fall into the category of sales literature, and a chat room discussion is considered a public appearance.
It's not just a matter of making sure that communications that can be construed as investment advice are monitored. Content from social media sites has been used in court cases as evidence and has cost employees jobs and companies their reputations–consider the Domino's Pizza incident, in which two employees were charged with a felony after posting a YouTube video of themselves adulterating food at a Domino's in North Carolina, and the Ohio Petland incident, in which an employee posted a gruesome photo of herself on Facebook with two drowned rabbits that she had allegedly drowned. Both drew unfavorable national attention for the parent companies. An employee who posts about proprietary information or who alleges wrongdoing can cause an abundance of trouble.
