Social Networking and Internet Marketing in the Financial Services Sector

Transcription

1 Social Networking and Internet Marketing in the Financial Services Sector How compliant is your program? Michele (Mitch) L. Gibbons Partner Michael R. Butowsky Partner July 29, 2009 Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and JSM, a Hong Kong partnership, and its associated entities in Asia. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.

2 What is social networking? Social networking allows people or groups to join together in cyberspace with the goal of connecting with other people or groups online. Typically, users who sign up will have a profile page that displays their photo and lists their name and other biographical information, their interests and groups, their educational background and where they are employed. Generally, online profiles are publicly available so anyone can read them. One can, however, take steps to make their profile only available to the friends or colleagues they are linked to. Users form groups to share common interests. Many sites allow users to link to additional information, share photos, videos, comments, etc. They can also hold virtual events (such as a webinar), polls or competitions. 2

3 Dialogue Wikis Blogs Micro Blogs Virtual Worlds Online Chat Photo Sharing Sites Video Sharing Sites Social Media RSS Widgets Podcasts Message Boards Social Bookmarks Social Networks 3

4 RSS Really Simple Syndication 4

5 Follow me on... 5

6 Social Media Trends 6

7 Regulatory Concerns Public securities advice and recommendations Advertising and marketing regulations Communications with clients and prospective clients Securities offering regulations Private placements Investment company products Research and analyst rules Anti-fraud rules Solicitation rules Books and records rules Privacy regulations 7

8 Broker-Dealers FINRA Guidelines on Social Networking If the information is publicly available and the registered representative is using it for any work-related matter, any communication on that page related to the firm s business would be considered an advertisement, just as it would on the firm s public website. If the profile is restricted to the representative s specific contacts or is password protected, the communication is considered sales literature. An or instant message sent to 25 or more prospective retail customers is considered sales literature. An or instant message is considered correspondence if it is sent to i) a single customer (prospective or existing) or ii) to an unlimited number of existing retail customers and/or less than 25 prospective retail customers (firm-wide) within a 30-day period. Chat rooms, blogs, micro-blogs, bulletin boards and similar discussions are considered public appearances. 8

9 Broker-Dealer Regulatory Concerns Standards of Commercial Honor and Principles of Trade (Rule 2010) Communications with the Public (Rule 2210): Must be based on principles of fair dealing and not omit material information, particularly risk disclosures; Must not make exaggerated, unwarranted, or misleading claims; Must give the investor a sound basis for making an investment decision; and Must not contain predictions or projections of investment results. Approval and Recordkeeping (Rule 2210(b)) Supervision (Rule 3010) Books and Records (Rule 3110) Recommendations to Customers (Suitability) (Rule 2310) Conflicts of Interest (Rule 2711) Member Firm Name Required (IM 2210) Current information should be used Linking to other websites Material from third-party websites FINRA membership and linking to FINRA websites State/Non-U.S. registration requirements 9

10 Investment Adviser Regulatory Concerns Holding out as an adviser registration exemptions Advertisement anything that is meant to keep or attract advisory clients (Advisers Act Rule 206(4)-1) No testimonials No past-specific recommendations Limited use of charts and graphs No material misstatements or omissions Fiduciary duty Antifraud rules Solicitation rules Securities recommendations Insider trading 10

11 Investment Funds Private Funds No general solicitation or advertising! Mutual Funds Investment Company Act advertising rules Prospectus delivery requirements FINRA filing requirements 11

12 Other Concerns Reputational risk Confidentiality Employment policies (anti-harassment, etc.) Defamation Intellectual property Potential use in litigation* * Look for Mayer Brown s e-discovery monthly tips addressing social networking July

13 Social Networking Managing the Inevitable Control the firm s use Choose acceptable media: moderated blogs, business networks, etc. Posting guidelines Control customer use Control employee use at the firm Employee use outside of work 13

14 You can not monitor and supervise social media practices unless you are familiar with them. It s time to log on. 14

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19 Blocking social media websites is not enough. 19

20 Twitter connects people by allowing users to post periodic updates on what they are doing or thinking (limited to 140 characters or less). Family, friends and even strangers can read these posts and reply to them. Industry experts report that 3.4 million unique visitors visit Twitter each month and that number is growing rapidly. Median age of user = 31. Often used as a news source. 20

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31 Business-oriented professional networking website (stresses résumés, industry-related groups, networking events and career marketing) > 40 million users. Median age of user = 40.5 Users can have a public or private (restricted access) profile, but much information is available even if you elect to have a private profile First question where do you work? 31

32 Recommendations example LinkedIn 32

33 Recommendations example LinkedIn 33

34 Related to business profile setup 34

35 Social Network Constant Prompts: 35

36 Social Network Constant Prompts: 36

37 Social Network Constant Prompts: (Any answer will likely involve work ) 37

38 Policies and Procedures Regulatory Guidance FINRA Notice Supervision of Electronic Communications FINRA Guide to the Internet for Registered Representatives FINRA Rule 2210 FINRA Podcast on Social Media Investment Advisers Act Rule 206(4)-1 SEC Release on the Use of Electronic Media Books and Records Rules 38

39 Employee Policies Establish and set up compliance guidelines and policies. Block access to social networking sites on the company s network. Choose one of the three below for rules regarding employees personal profiles: Allow employees to post information about the firm, but require preapproval for all such postings; A limited prohibition against allowing information to be posted to the public profile* portion of any social networking website; or An absolute prohibition against employees communicating any information about the firm (other than the name of their employer) on a social networking website. Educate employees about regulatory and legal risks and compliance procedures. Require employees to attest that they are in compliance with the firm s rules regarding advertising and electronic communications. Set up an internal audit organization to review what employee s are saying on the social networking sites. Take punitive action when necessary. 39

40 Employee Internet Use Sample Guidelines Think First. Remember you are publishing in a public forum, so don t publish anything that you wouldn t want to be viewed by your colleagues or the general public. Maintain Confidentiality. Identities of our investments, investors and business partners must be held in confidence to the extent appropriate for that relationship. Securities Laws. It is very easy for these types of communication to violate securities laws. Financial Performance. Do not make statements about the financial performance of the company. Identify Yourself. If you are commenting or publishing on topics related to your job, identify yourself as an employee of the firm. Disclaimers. You should make it clear that you are expressing views that are your own and not those of the Company. Be Respectful of Your Colleagues, the Company, and Our Competitors. Rumors and gossip spread like wildfire on the Internet. Do not contribute anything that violates the Company s sexual harassment policy or similar human resources policies. Copyright. Comply with copyright laws. Fair use doctrine is rarely a useful defense in the commercial context. Use of Logos or Service Marks. The company s logo or service mark cannot be used without the written permission of the General Counsel. Anonymous Contributions. The same cautions and restrictions on communications 40 apply to supposedly "anonymous" blogs, comments or posts.

41 Firm Policies Sample broker policy Personal Internet Websites and Internet Profiles Employees may not maintain their own web page and/or other internet site with any business, securities, commodity futures, other investment-related content or communications that have not been approved by the Chief Compliance Officer. Use of News Groups, Bulletin Boards, Blogs or Chat Rooms With respect to communications posted by associated persons of the Firm on electronic bulletin boards, message boards, blogs and similar media, such materials shall be considered advertisements because such material can be viewed by anyone with access to these services. Accordingly, the designated principal shall review and approve all advertisements before use and a copy of such materials shall be retained in the Firm s books and records in accordance with Exchange Act Rules 17a-3 and 17a-4. Internet or third-party service news groups, interactive electronic conversations (through direct links or chat rooms ), bulletin boards and the like are not to be used to talk up, talk down or otherwise discuss any security, commodity, other investment, investment strategy or company or other entity that has issued or is proposed to issue securities. These services are not to be used to discuss any customer or customer account or as a means of soliciting customers. The foregoing prohibitions apply even if the communication is from a personal account, the employee uses a pseudonym or does not identify himself/herself as a Firm employee. In addition, information received from news groups, bulletin boards and chat rooms must be regarded as obtained from a source of unknown reliability and should be independently verified. Rumor and speculation are not to be the basis for trading. This policy also applies to social networking sites such as Facebook, LinkedIn, Twitter and MySpace. Firm Websites The Chief Compliance Officer or his or her designee must approve all changes to any website(s) sponsored by the Firm prior to posting, including look and feel changes and updates to the website(s). Such person must also determine whether the changes necessitate a new filing with FINRA. It is against Firm policy for employees to post any Firm proprietary information on the Firm s Internet site, or a thirdparty Internet site, without prior approval of the Chief Compliance Officer. Generally, materials to be posted on the Firm s Internet site should be reviewed and approved by the Chief Compliance Officer. 41

42 Social Media User Policies Be polite and stay on topic. We can not use this website to give specific advice. We reserve the right not to publish certain comments and to delete certain information from comments (such as names and addresses) We will not publish testimonials, specific advice about investing or abusive comments. We reserve the right to delete comments that we, in our sole discretion, believe may be unlawful, abusive, offensive, or inappropriate. No personal info. Other than your name, please don t share any personal information or details about your portfolio. No testimonials. Industry regulations prevent us from posting stories about how well (or poorly) people have done by investing with us or any other investment company. No advice. Industry regulations prevent us from posting any specific investment advice. Suggestions on how to save money are OK, but stock tips or specific mutual fund recommendations are not. No responses. As much as we d like to, we can t respond to your comments. Be nice. We welcome disagreement and constructive criticism, but please refrain from general attacks on our company (particularly when unrelated to the posting), other investment companies, your fellow users, and so on. Please don t use this website to request transactions or submit questions about your investments or customer-service issues. Instead, contact us directly. 42

43 Company Disclaimers unknown effect Any opinions expressed by users are those of the persons submitting the comments, and don t necessarily represent the views of the company or its management. The company is not responsible for and does not endorse any advertisements that the website provider may place on this page. The company is not responsible for and does not endorse the content, advertising, products, advice, opinions, recommendations or other materials on or available from other pages on this social network or any website owned or operated by a third party. Nothing on this site shall be deemed an offer to buy or sell or a solicitation to buy any security and no services or products are being offered in any jurisdiction where such offer would be deemed to be a violation of law. The company is not responsible for the terms of use or privacy or security policies at this site or other third party sites that may be linked to by this page or other social network pages. You will use any third party sites and materials at your own risk. 43

44 Thank you. 44

45 Acknowledgements and Disclaimers This Mayer Brown LLP publication provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein Copyright Mayer Brown LLP Data on slide 6 was obtained from Universal Mccann Comparative Study on Social Media Trends April Company logos and website images are used for illustrative purposes only and were obtained directly from the company websites as of July 29, Other images used with permission or limited license. Online research assistance provided by Meagan Healy, Christine Parsadaian and Amanda Vermillion. 45