Using Social Media for M&A Success

As online social networks and social media become more pervasive and frequently used methods of business communication, M&A professionals must know and understand the ins and outs of using these sites while remaining compliant with SEC and FINRA regulations and guidelines. Guest blogger Jaime Romero of AxialMarket discusses these compliance issues and offers suggestions applicable to all industries.

Guest blogger Jaime Romero is the VP of Marketing of AxialMarket, an online network that helps over 3,000 member companies engage in buying, selling and lending to private companies. Follow the company’s conversation on Twitter and LinkedIn. Scroll to the bottom of the post for a download link to the full whitepaper from which this post is derived.

As online social networks and social media become more pervasive and frequently used methods of business communication, M&A professionals must know and understand the ins and outs of using these sites while remaining compliant with SEC and FINRA regulations and guidelines.

What follows is a summary of FINRAʼs Regulatory Notice 10-06 [PDF]. Released in January 2010, the notice provides guidance on the use of blogs and social networking sites by M&A professionals. To ensure compliance, Registered Representatives should develop their compliance policies and procedures with support from legal counsel and firms specializing in FINRA/SEC compliance solutions, as the consequences of violating the guidelines do not distinguish between communication via the Internet and written or in-person communication.

Chad Bockius, CEO of Socialware, a company providing software-based tools to help financial services companies execute successful social media strategies in compliance with regulatory requirements, believes that “social networks are ideal for building valued relationships.” He says, “Due to the continuing growth of Facebook, LinkedIn and Twitter, there are clear opportunities for financial services professionals to use social media in order to identify and foster relationships that can deliver business results. Understanding the regulatory guidelines, building a strategy including sound technology, and measuring effectiveness are key steps to effectively using social media.”

According to FINRA:

  • Publicly available web sites (ex: Twitter) are considered advertisements
  • An email or instant message is considered sales literature if it is sent to 25 or more prospective customers
  • An email or instant message is considered correspondence if it is sent to a single customer, an unlimited number of existing retail customers, and/or fewer than 25 prospective retail customers (firm-wide) within a 30-day period
  • Password-protected web sites (ex: Facebook or LinkedIn) are considered sales literature • Chat room discussions (ex: Facebook discussions, LinkedIn Q&A) are considered public appearances

1. Recordkeeping Responsibilities

“Every firm that intends to communicate, or permit its associated persons to communicate, through social media sites must first ensure that it can retain records of those communications as required by Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934 and NASD Rule 3110. SEC and FINRA rules require that for record retention purposes, the content of the communication is determinative and a broker-dealer must retain those electronic communications that relate to its “business as such.”

Posting updates to LinkedIn or Facebook is considered sales literature, and as a result, you are required to obtain prior approval from the registered principal at the firm and maintain records of your social media activity. There are a number of solutions available to capture your social media activity such as Socialware, a compliance solution that will help you implement and enforce corporate and regulatory policies for social networking sites.

2. Recommendations/Testimonials

Jamie Romero, CMO, AxialMarket

“It shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of section 206(4) of the Act for any investment adviser registered or required to be registered under section 203 of the Act, directly or indirectly, to publish, circulate, or distribute any advertisement: (1) Which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser”

LinkedIn presents a risk, as colleagues are able to write recommendations of you on the site. The solution is fairly simple: LinkedIn provides the ability to turn off recommendations from your profile. Be sure you create a firm-wide policy requiring that all Registered Representatives and employees subject to this rule turn off recommendations on their profiles.

3. Interactive Electronic Forums/Advertisements

“The definition of “public appearance” in NASD Rule 2210 includes unscripted participation in an interactive electronic forum such as a chat room or online seminar. Rule 2210 does not require firms to have a registered principal approve in advance the extemporaneous remarks of personnel who participate in public appearances. However, these interactive electronic forums are subject to other supervisory requirements and to the content requirements of FINRAʼs communications rule.”

Social media sites and blogs are categorized as static or dynamic with each treated differently by FINRA. A static blog is considered an “advertisement,” while a dynamic blog with real-time interactive communication is considered an interactive electronic forum, which does not require prior principal approval.