The SEC recently issued an investor alert to warn investors about potential fraudulent investment schemes involving popular social media sites such as Facebook, YouTube and Twitter, turning its eye towards investor fraud perpetuated via social media. The alert, issued by the SEC’s Office of Investor Education and Advocacy, provides five tips to help consumers recognize and avoid investment fraud, easily made anonymous online, using social media websites and services: (1) be wary of unsolicited offers to invest; (2) look for “red flags,” e.g., offers that sound too good to be true or that “guarantee” returns; (3) look for “affinity frauds,” which are “investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly or professional groups;” (4) be thoughtful about privacy and security settings; and (5) ask questions and investigate investment opportunities thoroughly. The alert also describes common investment scams that have used social media and the internet to gain traction, including “Pump-and-dump” schemes, fraudulent “research opinions” or “investment newsletters,” high-yield investment programs, and offerings that just fail to comply with applicable registration provisions of the federal securities laws.
The SEC issued a release today confirming that companies can use social media outlets like Facebook, Twitter, and LinkedIn to announce information in compliance with Regulation FD (“Reg FD”) so long as investors have been alerted in advance about which social media will be used to send the information.
The SEC’s release grows out of an inquiry involving the CEO of a major Internet television network. The CEO posted on his Facebook page that his company’s online viewing had exceeded a key milestone for the first time. His Facebook statement was not accompanied or preceded by any company press release or 8-K. The stock jumped substantially, and the SEC came knocking.
The SEC’s release confirms that companies are permitted to announce material news through social media, provided investors know when and where to expect it. In response to the SEC’s latest release on Reg FD, we expect that public companies will update their social media protocols and, as appropriate, integrate investor relations communications more closely with links to sites like Facebook, Twitter and LinkedIn.