More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
The Securities and Exchange Commission on Wednesday charged an Illinois-based advisor with offering to sell fictitious securities on LinkedIn, and the agency also released three alerts warning advisors of the risks advisory firms and investors face when using social media.
The National Examination Risk Alert titled “Investment Adviser Use of Social Media” provides SEC staff observations based on a review of investment advisors of varying sizes and strategies that use social media.
Carlo di Florio, director of the SEC’s Office of Compliance Inspections and Examinations, said in announcing the alerts that 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.”
The alert reviews concerns that may arise from use of social media by firms and their associated persons, and offers suggestions for complying with the anti-fraud, compliance and recordkeeping provisions of the federal securities laws. The alert notes that firms should consider how to implement new compliance programs or revisit their existing programs in the face of rapidly changing technology.
The SEC’s Office of Investor Advocacy also issued an Investor Alert titled “Social Media and Investing: Avoiding Fraud,” designed 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.
The agency also released an Investor Bulletin titled “Social Media and Investing: Understanding Your Accounts,” which contains best practices including privacy settings, security tips, and password selection aimed to help social media users protect their personal information and avoid fraud.
The SEC’s Division of Enforcement alleges that Anthony Fields of Lyons, Ill., offered more than $500 billion in fictitious securities through various social media websites. For example, the SEC says he used LinkedIn discussions to promote fictitious “bank guarantees” and “medium-term notes.” The postings resulted in interest from multiple purported potential buyers, the SEC says.
“Fraudsters are quick to adapt to new technologies to exploit them for unlawful purposes,” said Robert B. Kaplan, co-chief of the SEC Enforcement Division’s Asset Management Unit, in a statement. “Social media is no exception, and today’s enforcement action reflects our determination to pursue fraudulent activity on new and evolving platforms.”
According to the SEC’s order instituting administrative proceedings against Fields, he made multiple fraudulent offers through his two sole proprietorships–Anthony Fields & Associates and Platinum Securities Brokers. Fields provided false and misleading information concerning AFA’s assets under management, clients, and operational history to the public through its website and in SEC filings, the SEC says. He also 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.