The Securities and Exchange Commission charged an Illinois-based investment adviser with offering to sell fictitious securities on LinkedIn. The SEC also issued two alerts to highlight the risks investors and advisory firms face when using social media.
The SEC's Division of Enforcement alleges that Anthony Fields of Lyons, Illinois offered more than $500 billion in fictitious securities through various social media websites. In the complaint, they cite a LinkedIn posting to promote fictitious "bank guarantees" and "medium-term notes":
"Bank Guarantees, Cash Backed, Deutsche Bank, Credit Suisse, HSBC, JP Morgan Chase, BNP Paribas, UBS, RBS or Barclays, One (1) year and one (a) day, Fresh Cut USD 500 Billion (USD 500,000,000,000) with Rolls andExtensions 40% or better plus 1% commission fee to be paid, to buy side and sell side consultants 50/50. First Tranche: 500M USD . . . . If you are interested you can email for particulars . . . ."
The SEC pulled out a laundry list of violations. Fields was not registered as a broker-dealer nor listed as an associated person a registered broker-dealer at the time of the postings. He later set up an unfunded investment adviser and unfunded broker-dealer. Fields provided false and misleading information concerning assets under management, clients, and operational history to the public through its website and in SEC filings. Fields 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.
The question I have is did someone turn in Fields? Or is the SEC searching social media sites looking for suspicious securities postings?
In the new investor alert, the SEC offers tips to help avoid fraud online. (.pdf)
If you see a new post on your wall, a tweet mentioning you, a direct message, an e-mail, or any other unsolicited - meaning you didn't ask for it and don't know the sender - communication regarding a so-called investment opportunity, you should exercise extreme caution. An unsolicited sales pitch may be part of a fraudulent investment scheme.
The SEC points out the three big red flags:
In addition to the investor-facing alert, the SEC also issued a risk alert aimed at a registered investment adviser's use of social media. It once again points out that while the social media platforms may be new, the securities laws are not. You can only use the shiny new tools in compliance with the existing regulatory regime.
"While many RIAs are eager to leverage social media to market and communicate with existing clients, and to promote general visibility, RIAs should ensure that they are in compliance with all of the regulatory requirements and be aware of the risks associated with using various forms of social media. The staff hopes that sharing observations from its recent review of RIAs' use of social media as well as its suggestions regarding factors that firms may wish to consider is helpful to firms in strengthening their compliance and risk management programs."
For additional commentary on developments in compliance and ethics, visit Compliance Building, a blog hosted by Doug Cornelius.
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