Category Archives:SEC

SEC Alert on Social Media

The SEC’s Office of Investor Education and Advocacy issued an Investor Alert to create awareness of fraudulent investment schemes that may involve social media. U.S. retail investors are increasingly turning to social media (Facebook, YouTube, Twitter, LinkedIn and other online networks) for information about investing. Whether it be for research on particular stocks, background information on a broker-dealer or investment adviser, guidance on an overall investing strategy, up-to-date news, or to simply discuss the markets with others, social media has become a key tool for U.S. investors.

While social media can provide many benefits for investors, it also presents opportunities for fraudsters. Social media, and the Internet generally are an attractive play ground for criminals as it lets fraudsters contact many different people at a relatively low cost. It is also easy to create a site, account, email, direct message, or webpage that looks and feels legitimate – and that feeling of legitimacy gives criminals a better chance to convince someone to send them money. Also, with anonymity it can be difficult to track down the true account holders that use social media and hold them accountable.

The alert recommends: 1) to 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) exercise 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.

SEC's OCIE Cybersecurity Initiative

On March 26, 2014, the Securities and Exchange Commission (SEC) hosted a roundtable to discuss cybersecurity issues facing public companies, broker-dealers, investment advisers and other market participants. While cybersecurity has been a hot topic for the last couple of years, the SEC has provided only informal guidance to registrants and other market participants. At the roundtable, Chair Mary Jo White  emphasized the “compelling need for stronger partnerships between the government and private sector” to address cyber threats.

On April 15, 2014, SEC’s Office of Compliance Inspections and Examinations (OCIE) issued a Risk Alert describing an initiative it is currently undertaking to assess cybersecurity preparedness in the securities industry. The nine-page documen contains several examples of the questions Securities and Exchange Commission examiners might ask brokerages and asset managers during inspections. According to OCIE, the examinations will focus on “cybersecurity governance, identification and assessment of cybersecurity risks, protection of networks and information, risks associated with remote customer access and funds transfer requests, risks associated with vendors and other third parties, detection of unauthorized activity, and experiences with certain cybersecurity threats.”

The SEC hopes these examinations will help identify areas where the Commission and the industry can work together to protect investors and our capital markets from cybersecurity threats. The sample document request is intended to empower compliance professionals in the industry with questions and tools they can use to assess their firms’ level of preparedness, regardless of whether they are included in OCIE’s examinations.