The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

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By Topic: Social Media

  • From Vol. 10 No.12 (Mar. 23, 2017)

    Best Practices for Investment Advisers Using Social Media to Mitigate Advertising Rule Violations and Other Risks

    The advent of Twitter, Facebook, LinkedIn and other widely popular social media forums has had a dramatic impact on society at large, including the investment funds industry. Yet investment advisers and firms may not fully grasp the compliance and operational risks that new technologies and sites can pose. Questions abound as to whether social media can be used to provide material information to certain investors at the expense of others; when the line is crossed from informational content to marketing a fund; and whether the social media accounts of individual employees and representatives need to be monitored for compliance purposes. These issues were the subject of a recent Regulatory Compliance Association (RCA) PracticEdge session that offered insights from Heather Traeger, chief compliance officer for the Teacher Retirement System of Texas; Parisa Haghshenas, a Branch Chief in the Chief Counsel’s Office of the SEC’s Division of Investment Management; Catherine Courtney Gordon, counsel at Morgan Lewis; and Isabelle Sajous, associate general counsel and deputy chief compliance officer at Cramer Rosenthal McGlynn. This article highlights the key takeaways from the session. For coverage of other RCA panels, see “Risks With Investment Allocation, Trade Execution, Soft Dollars, Client Solicitation and Valuation” (Apr. 14, 2016); and “Issues Pertaining to the Custody Rule, ERISA, Client Agreements, Fees, Codes of Ethics and Confidentiality” (Apr. 7, 2016). On May 18, 2017, RCA will host its annual Enforcement, Compliance & Operations Symposium in New York City. For additional information or to register for the symposium, click here.

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  • From Vol. 9 No.45 (Nov. 17, 2016)

    The SEC’s Recent Revisions to Form ADV and the Recordkeeping Rule: What Investment Advisers Need to Know About Retaining Performance Records and Disclosing Social Media Use, Office Locations and Assets Under Management (Part Two of Two)

    On August 25, 2016, the SEC adopted much-anticipated amendments to Form ADV, Part 1A and to Rule 204-2 (recordkeeping rule) under the Investment Advisers Act of 1940. These amendments further the SEC’s agenda to gather more information about its registrant base to inform the agency’s risk-based approach to adviser examinations. See “OCIE Director Marc Wyatt Details Use of Technology and Coordination With Other Agencies to Execute OCIE’s Four-Pillar Mission” (Nov. 3, 2016). In a two-part guest series, Michael F. Mavrides and Anthony M. Drenzek, partner and special regulatory counsel, respectively, at Proskauer Rose, review the amendments to Form ADV and the recordkeeping rule and provide practical guidance to SEC-registered investment advisers on the steps to take prior to the compliance date to ensure their firms are prepared to comply with the amended rules. This second article in the series discusses the new disclosure requirements relating to an adviser’s use of social media; office locations; the amount of an adviser’s proprietary assets and assets under management; the sale of 3(c)(1) fund interests to qualified clients; and the recordkeeping requirements regarding performance claims in communications that are distributed to any person. The first article reviewed the detailed disclosures that advisers will be required to provide with respect to managed account clients and the firm’s chief compliance officer, as well as factors to consider when pursuing an umbrella registration. For additional commentary from Proskauer partners, see “Swiss Hedge Fund Marketing Regulations, BEA Forms and Form ADV Updates: An Interview With Proskauer Partner Robert Leonard” (Mar. 5, 2015); and “Proskauer Partner Christopher Wells Discusses Challenges and Concerns in Negotiating and Administering Side Letters” (Feb. 1, 2013). For more on Form ADV, see “How Can Hedge Fund Managers Rebut the Presumption of Materiality of Certain Disciplinary Events in Form ADV, Part 2?” (Jan. 5, 2012); and “Recent SEC Enforcement Action Demonstrates the SEC’s Focus on the Accuracy and Consistency of Disclosures by Hedge Fund Managers in Form ADV” (Jan. 5, 2012).

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  • From Vol. 7 No.20 (May 23, 2014)

    Six Privacy-Related Topics to Be Covered by a Hedge Fund Manager’s Compliance Policies and Procedures (Part Three of Three)

    This is the final article in our three-part series on employee privacy issues relevant to hedge fund managers.  The first article in this series made the case, using examples, for why hedge fund managers should care about employee privacy.  See “How Can Hedge Fund Managers Reconcile Effective Monitoring of Electronic Communications with Employees’ Privacy Rights? (Part One of Three),” The Hedge Fund Law Report, Vol. 7, No. 13 (Apr. 4, 2014).  The second article in this series identified the five primary sources of employee privacy rights.  See “Three Best Practices for Reconciling the Often Conflicting Sources of Privacy Rights of Hedge Fund Manager Employees (Part Two of Three),” The Hedge Fund Law Report, Vol. 7, No. 14 (Apr. 11, 2014).  This article discusses six topics that hedge fund managers should cover in their compliance policies and procedures under the general rubric of employee privacy.  The overarching aim of this series is to assist managers in calibrating and communicating their employees’ expectations of privacy – particularly in connection with electronic communications – in a manner consistent with best practices, relevant law and expectations of SEC examiners.

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  • From Vol. 7 No.15 (Apr. 18, 2014)

    SEC Issues Guidance for Investment Advisers on the Interplay of the Testimonial Rule and Social Media

    From the SEC’s perspective, testimonials about investment advisers are misleading for the same reason as cherry picking: because testimonials present positive information without the context of offsetting negative information.  See “How Can Hedge Fund Managers Market Their Funds Using Case Studies Without Violating the Cherry Picking Rule? (Part Two of Two),” The Hedge Fund Law Report, Vol. 6, No. 47 (Dec. 12, 2013).  Rule 206(4)-1 under the Investment Advisers Act of 1940 (Act), accordingly, prohibits the use of testimonials by investment advisers.  However, that rule was drafted to cover a static media landscape consisting of print, television and radio; the rule is an imperfect fit with social media, a dynamic, ubiquitous and increasingly commercial channel.  Not surprisingly, the SEC has received a regular clip of questions over the past several years about how the prohibition on testimonials applies to statements about an investment adviser on social media websites.  Last month, the SEC’s Division of Investment Management addressed some of those questions in a Guidance Update.  This article describes the Guidance Update, focusing in particular on the principles in the Guidance Update most relevant to hedge fund managers.  This article concludes with the HFLR’s thoughts on the limited utility of the Guidance Update for hedge fund manager marketing.  See also “Understanding the Regulatory Regime Governing the Use of Social Media by Hedge Fund Managers and Broker-Dealers,” The Hedge Fund Law Report, Vol. 5, No. 47 (Dec. 13, 2012).

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  • From Vol. 6 No.40 (Oct. 17, 2013)

    Daniel New, Executive Director of E&Y’s Asset Management Advisory Practice, Discusses Best Practices on “Hot Button” Hedge Fund Compliance Issues: Disclosure, Expense Allocations, Insider Trading, Political Intelligence, CCO Liability, Valuation and More

    The task of serving as chief compliance officer (CCO) of a hedge fund manager is becoming progressively more challenging in light of ever-increasing regulatory obligations, heightened enforcement activity and resource constraints.  CCOs can benefit from understanding the best practices being employed by their peers, and customizing relevant practices to their businesses.  As Executive Director of Ernst & Young’s Asset Management Advisory Practice, Daniel New sees a cross-section of compliance practices at brand-name hedge fund managers.  He sees what works from a compliance perspective, and what needs work.  The Hedge Fund Law Report recently interviewed New on a range of issues regularly encountered by hedge fund manager CCOs.  The interview spanned topics including consistency of fund marketing and disclosure documents; a CCO’s role in preparing and completing Form PF and other regulatory filings; structuring and memorializing annual compliance reviews; allocating expenses between a manager and its funds; insider trading and political intelligence controls; social media use by manager personnel; a CCO’s risk management responsibilities; outsourcing of CCO functions in light of resource constraints; and mitigating rogue trading risks.  The breadth of topics covered reflects the expansiveness of a typical CCO’s portfolio.  The idea behind this interview is to enable CCOs to allocate their scarcest resource – time – more effectively.  This interview was conducted in connection with the Regulatory Compliance Association’s upcoming Compliance, Risk & Enforcement 2013 Symposium, to be held at the Pierre Hotel in New York City on October 31, 2013.  For a fuller description of the Symposium, click here.  To register for the Symposium, click here.  Subscribers to The Hedge Fund Law Report are eligible for a registration discount.

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  • From Vol. 6 No.10 (Mar. 7, 2013)

    How Can Hedge Fund Managers Identify and Navigate Pitfalls Associated with the JOBS Act’s Rollback of the Ban on General Solicitation and Advertising?

    The Jumpstart Our Business Startups Act (JOBS Act) provisions allowing general solicitation and general advertising in private offerings (JOBS Act Marketing Provisions), upon becoming effective, will profoundly change how hedge fund managers can market their funds.  Before taking advantage of the JOBS Act Marketing Provisions, however, hedge fund managers should be aware of a number of potential pitfalls.  First, hedge fund managers may be prohibited from engaging in general solicitation and general advertising if they rely on exemptions from registration under certain Commodity Futures Trading Commission rules, or under certain state and federal investment adviser laws.  Second, hedge fund managers that are able to take advantage of the provisions need to be aware of several potential compliance issues under the Investment Advisers Act of 1940, including issues that arise when using social media, publicly available websites and publicly advertised performance history.  In a guest article, Adam Gale, a Member in the New York office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., identifies potential regulatory pitfalls associated with reliance on the JOBS Act Marketing Provisions and provides some recommendations to address compliance issues in connection with reliance on the JOBS Act Marketing Provisions.

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  • From Vol. 6 No.4 (Jan. 24, 2013)

    K&L Gates Investment Management Seminar Provides Guidance for Hedge Fund Managers on Social Media, Pay to Play Rules, ERISA Rule Changes, AIFMD, SEC Examination and Enforcement Priorities, Form PF, the JOBS Act, CPO Regulation and FATCA

    On December 5, 2012, international law firm K&L Gates held its 2012 Investment Management Conference in New York.  Speakers at the conference provided guidance on various regulatory developments impacting hedge funds, including: the use of social media; pay to play rules; rule changes under the Employee Retirement Income Security Act of 1974 (ERISA) impacting managers of plan assets; the E.U. Alternative Investment Fund Managers Directive (AIFMD); SEC examination and enforcement priorities; Form PF; the JOBS Act; regulation of commodity pool operators (CPOs); and the Foreign Account Tax Compliance Act (FATCA).  This article highlights the key points discussed at the conference on each of the foregoing topics.

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  • From Vol. 6 No.1 (Jan. 3, 2013)

    How Can Hedge Fund Managers Identify, Mitigate and Insure Against Cyber Security Threats?

    On December 4, 2012, a webcast jointly sponsored by insurance brokerage firm Maloy Risk Services; insurer Chubb & Son; and Internet security software developer Trend Micro, provided an overview of the current cyber “threat landscape,” highlighted the critical need to vet the cyber defenses of third party service providers, and discussed insurance coverage available with respect to cyber attacks.  This article summarizes the key points from the webcast that are most relevant to hedge fund managers and includes a due diligence checklist for managers to verify cyber security measures taken by third party vendors.

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  • From Vol. 5 No.47 (Dec. 13, 2012)

    Understanding the Regulatory Regime Governing the Use of Social Media by Hedge Fund Managers and Broker-Dealers

    Social media has been increasingly adopted, if not embraced, by businesses, including investment advisers (such as hedge fund managers) and broker-dealers (which may be affiliates of certain hedge fund managers).  The question that arises is how does social media fit into the regulatory regime governing investment advisers and broker-dealers?  The question is increasingly important in light of both the forthcoming rule-making by the Securities and Exchange Commission (SEC) pursuant to the Jumpstart Our Business Startup Act (JOBS Act) as well as the SEC’s recent release of a National Examination Risk Alert entitled “Investment Adviser Use of Social Media” (Alert).  The Financial Industry Regulatory Authority, Inc. (FINRA) has also issued regulatory notices within the last two years providing guidance on the use of social media by broker-dealers.  In a guest article, Ricardo W. Davidovich, a partner at Tannenbaum Helpern Syracuse & Hirschtritt LLP, and Karina Bjelland, a managing consultant in the Financial Institutions Practice at Berkeley Research Group, LLC, summarize the relevant regulatory guidance from the federal securities laws, the JOBS Act, the Alert and the FINRA rules and notices to members.  Bjelland also recently participated in a webinar covered in the HFLR.  See “How Can Fund Managers Address the Regulatory, Compliance, Privacy and Ethics Issues Raised by Social Media?,” The Hedge Fund Law Report, Vol. 5, No. 44 (Nov. 21, 2012).

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  • From Vol. 5 No.44 (Nov. 21, 2012)

    How Can Fund Managers Address the Regulatory, Compliance, Privacy and Ethics Issues Raised by Social Media?

    On November 28, 2012 – a week from today – Richards Kibbe & Orbe LLP (RKO), Berkeley Research Group (BRG) and The Hedge Fund Law Report will host a complimentary, CLE-eligible webinar entitled “How can fund managers address the regulatory, compliance, privacy and ethics issues raised by social media?”  Topics to be covered in the webinar include: tapping into the benefits of social media for hedge fund advisory businesses while maintaining necessary control and oversight; navigating the complexities of user privacy, regulatory compliance and ethics; components of a model social media policy for fund managers; and implications of the Jumpstart Our Business Startups (JOBS) Act and rules for social media use.  The participants in the webinar will be: Eva Marie Carney, a partner in the Washington, D.C. office of RKO; James Walker, a partner in the New York office of RKO; Charles Lundelius, a director at BRG; and Karina Bjelland, a managing consultant in BRG’s Financial Institutions Practice.  Michael Pereira, publisher of The Hedge Fund Law Report, will moderate the discussion.  To register for the event, please click here.  As a preview of the material to be discussed during the webinar, The Hedge Fund Law Report conducted a comprehensive interview with the four participants.  Our interview covered, among other topics: the definition of social media; ways in which hedge fund managers are using social media; authority governing the use by fund managers of social media; the chief ways in which the JOBS Act will impact the use by private fund managers of social media; whether the prohibition on public offerings in Sections 3(c)(1) and 3(c)(7) of the Investment Company Act will curtail the expanded solicitation and advertising rights granted by the JOBS Act; the tension between the CFTC’s “de minimis” exception from commodity pool operator registration requirements and the JOBS Act; steps to be taken by a private fund manager to ascertain the “accredited” status of investors sourced via social media; rules governing a fund manager’s recordkeeping obligations with respect to social media; best practices with respect to mobile devices; the interaction between federal and state privacy laws and monitoring and archiving of employee social media communications; insider trading concerns raised by social media; and social media activity that may fall within the ambit of the SEC’s rules on testimonials.  The full text of our interview with Carney, Walker, Lundelius and Bjelland is included in this issue of The Hedge Fund Law Report.

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  • From Vol. 5 No.34 (Sep. 6, 2012)

    Grant Thornton Broker-Dealer Industry Symposium Focuses on Capital Requirements, Fiduciary Standards, the JOBS Act, the Volcker Rule and Use of Social Media

    On June 19, 2012, Grant Thornton hosted a symposium that highlighted recent regulatory developments impacting brokerage firms, including brokers that have hedge funds as clients.  The aim of the symposium was to arm broker-dealers with valuable information and tools to help them do business in an increasingly regulated industry.  The panelists addressed a number of current issues facing the broker-dealer industry, including: capital requirements for broker-dealers; new fiduciary standards for broker-dealers; the impact of the Jumpstart Our Business Startups (JOBS) Act; regulatory uncertainty surrounding the Volcker Rule; new rule changes impacting broker-dealers; best execution; and the use of social media.  This article summarizes highlights from the symposium on the foregoing topics.  For hedge fund managers, this discussion is relevant for at least two reasons.  First, hedge fund managers routinely interact with broker-dealers in connection with prime brokerage activities, obtaining leverage, borrowing shares to sell short, custody, derivatives transactions and a wide range of other activities.  Second, some hedge fund managers have affiliated broker-dealers.  See “Is the In-House Marketing Department of a Hedge Fund Manager Required to Register as a Broker?,” The Hedge Fund Law Report, Vol. 4, No. 10 (Mar. 18, 2011).

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  • From Vol. 5 No.17 (Apr. 26, 2012)

    What Concerns Do Mobile Devices Present for Hedge Fund Managers, and How Should Those Concerns Be Addressed? (Part Three of Three)

    For hedge fund managers, mobile devices are pervasive, unavoidable, valuable and dangerous.  Substantially everyone that works at a hedge fund management company has some sort of mobile device – personal or company-issued or both – and those devices are becoming more sophisticated every day.  On the positive side, mobile devices can raze the obstacles created by time and place; they enable employees to be productive on the go or at off hours.  But on the negative side, mobile devices introduce a number of competitive and regulatory challenges for hedge fund managers: they increase the odds that confidential data will leak; they facilitate the knowing or negligent misuse of material nonpublic information; they raise questions with regard to recordkeeping obligations; and so on.  This article is the last in a three-part series intended to help hedge fund managers identify and address – via policies, procedures and technology – the thorniest business and legal questions raised by mobile devices.  The first article in this series highlighted the risks to hedge fund managers posed by mobile devices, including susceptibility of critical information to leakage or theft, unauthorized trading, penetration of systems by malware and viruses and other potential harms.  See “What Concerns Do Mobile Devices Present for Hedge Fund Managers, and How Should Those Concerns Be Addressed? (Part One of Three),” The Hedge Fund Law Report, Vol. 5, No. 15 (Apr. 12, 2012).  The second article offered concrete suggestions on how hedge fund managers can anticipate and address those risks using policies, procedures and technology solutions.  Specifically, that second article identified three suggested steps that managers should take before crafting their mobile device policies and procedures, and made specific recommendations regarding the content of such policies and procedures.  See “What Concerns Do Mobile Devices Present for Hedge Fund Managers, and How Should Those Concerns Be Addressed? (Part Two of Three),” The Hedge Fund Law Report. Vol. 5, No. 16 (Apr. 19, 2012).  This article discusses additional specific suggestions on crafting policies and procedures and deploying technology to address the risks posed by mobile devices.  In particular, this article details: how hedge fund managers can prevent access to data on mobile devices by unauthorized persons; how managers may prevent firm personnel from exceeding authorized levels of data access; technology solutions for monitoring mobile devices; archiving data on mobile devices to comply with books and records policies and laws; and policies governing social media access via mobile devices.  See “SEC Risk Alert Discusses When Social Media Interactions May Constitute Prohibited Hedge Fund Client Testimonials,” The Hedge Fund Law Report, Vol. 5, No. 14 (Apr. 5, 2012).

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  • From Vol. 5 No.16 (Apr. 19, 2012)

    What Concerns Do Mobile Devices Present for Hedge Fund Managers, and How Should Those Concerns Be Addressed? (Part Two of Three)

    For hedge fund managers, mobile devices present benefits and risks.  On the benefit side, mobile devices enable employees to perform their jobs more efficiently – they reduce the relevance of geography and save considerable time.  But on the risk side, mobile devices create innumerable small cracks in the wall separating a manager’s confidential data from unauthorized use of that data.  Unfortunately for managers that globally determine that the risks outweigh the benefits, there is no realistic way to avoid confronting mobile devices.  Such devices have become an integral part of professional life in the service economy, and they play a particularly central role in information-driven businesses like hedge fund management.  Accordingly, the question for hedge fund managers is not whether to implement and enforce mobile device policies and procedures, but how.  This is the second article in a three-part series designed to answer this question.  The first article in this series made the “case” for the importance of mobile device policies and procedures for hedge fund managers.  It did so by illustrating the myriad risks imposed on a manager by the absence of such policies and procedures, including susceptibility of critical information to leakage or theft, unauthorized trading, penetration of systems by malware and viruses and other potential detriments.  See “What Concerns Do Mobile Devices Present for Hedge Fund Managers, and How Should Those Concerns Be Addressed?  (Part One of Three),” The Hedge Fund Law Report. Vol. 5, No. 15 (Apr. 12, 2012).  This article explains how hedge fund managers can anticipate and address those risks using policies, procedures and technology solutions.  This article starts by identifying three suggested steps that hedge fund managers should take before crafting their mobile device policies and procedures.  The article then makes specific recommendations regarding the content of mobile device policies and procedures.  As is evident in the discussion in this article, policies, procedures and technology are inextricably linked in this context, and effective policies and procedures must be informed by a thorough understanding of the relevant technology.  This article, accordingly, intersperses the legal and compliance discussion with a detailed description of available technology solutions.

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  • From Vol. 5 No.15 (Apr. 12, 2012)

    What Concerns Do Mobile Devices Present for Hedge Fund Managers, and How Should Those Concerns Be Addressed?  (Part One of Three)

    Mobile devices, such as smartphones and tablet computers, have significantly enhanced the ability of hedge fund managers and their personnel to conduct business more effectively and efficiently by, among other things, facilitating performance of job functions outside of the office.  However, such productivity gains come at a cost.  The ability to remotely access firm networks and information via mobile devices magnifies the risk of losing some control over access to firm information and firm systems.  Such loss of control can, in turn, create additional perils, most notably, security concerns for hedge fund managers who closely guard any informational advantage they have over competitors.  Additionally, such loss of control over access may heighten risks that a firm’s network is compromised, which can cause significant damage to a firm’s operations.  As such, it is imperative for hedge fund managers to keep up with the ever-growing risks that arise from the rapidly evolving mobile device technology landscape and to adopt policies and solutions designed to minimize the loss of control over access to firm information and systems.  This is the first article in a three-part series designed to address the concerns raised by mobile devices and to outline policies and procedures as well as technology solutions that can help hedge fund managers mitigate the risks posed by the use of mobile devices.  This first article provides an overview of the use of mobile devices and how hedge fund managers have historically addressed the use of mobile devices.  In particular, this article surveys the various risks for hedge fund managers raised by mobile devices, including security risks, risks related to unauthorized trading and risks related to the downloading of malware and viruses.  This article also addresses concerns relating to retention and archiving of books and records, and advertising and communications.  The second and third installments in this three-part series will discuss principles and detail best practices for establishing mobile device policies and procedures as well as specific mobile device solutions and technologies designed to address the risks catalogued in this article.

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  • From Vol. 5 No.14 (Apr. 5, 2012)

    SEC Risk Alert Discusses When Social Media Interactions May Constitute Prohibited Hedge Fund Client Testimonials

    On January 4, 2012, the Office of Compliance Inspections and Examinations (OCIE) of the Securities and Exchange Commission (SEC) released a National Examination Risk Alert on Investment Adviser Use of Social Media (Risk Alert).  The Risk Alert addresses the use by registered investment advisory firms of social media that integrate technology, social interaction and content creation – from blogs, wikis and photo sharing sites, to LinkedIn, YouTube, Facebook and other similar websites.  The Risk Alert serves as a reminder that use by hedge fund managers and other investment advisers of social media must comply with, among other things, the antifraud, compliance and recordkeeping provisions of the federal securities laws, including, the Investment Advisers Act of 1940 (Advisers Act).  The Risk Alert sets forth factors that the SEC staff believes, based on observations from recent OCIE exams, an investment adviser may wish to consider in complying with such obligations.  In a guest article, Kenneth J. Berman and Marcia L. MacHarg, both Partners at Debevoise & Plimpton LLP, and Gregory T. Larkin and Jaime D. Schechter, both Associates at Debevoise, analyze the Risk Alert and its implications for private fund managers.  See also “Does Social Media Have a Place in the Hedge Fund Industry?,” The Hedge Fund Law Report, Vol. 5, No. 6 (Feb. 9, 2012).

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  • From Vol. 5 No.6 (Feb. 9, 2012)

    Does Social Media Have a Place in the Hedge Fund Industry?

    While social media has captivated society and propelled it deeper into the communication age, the hedge fund industry has not yet embraced it on a meaningful scale.  See “Legal Considerations for Hedge Fund Managers that Use Social Media,” The Hedge Fund Law Report, Vol. 4, No. 14 (Apr. 29, 2011).  In fact, a recent survey of hedge fund managers found that the vast majority of hedge fund managers are simply not using social media.  On the one hand, it is surprising that hedge fund managers have been slow to explore social media given the otherwise cutting edge nature of the hedge fund industry.  On the other hand, many compliance professionals are simply stretched too thin by the introduction of new regulatory challenges arising from the Dodd-Frank Act, and thus are unable to devote resources to exploring this new frontier.  In reality, there appears to be very little dialogue regarding whether social media could be used effectively in the hedge fund industry, and if so, how to do so in compliance with applicable laws and regulations.  Therefore, in a guest article, John Herbert Roth, Counsel and Chief Compliance Officer of Venor Capital Management LP, initiates that dialogue by asking whether social media can have a place in the hedge fund industry, and then proposing a comprehensive framework within which hedge fund managers may think about social media and its compliance implications.  See also “SEC Enforcement Action and Bulletins Shine Spotlight on Use of Social Media by Investment Advisers,” The Hedge Fund Law Report, Vol. 5, No. 2 (Jan. 12, 2012).

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  • From Vol. 5 No.6 (Feb. 9, 2012)

    Survey Highlights Compliance Professionals’ Attitudes and Practices Concerning Electronic Communications Compliance

    Electronic communications compliance has become more important for hedge fund managers in recent years as the amount of business done electronically and the amount of regulatory focus on electronic communications compliance have grown significantly.  At the same time, compliance professionals have struggled to keep up with ever-changing circumstances that make electronic communications compliance, including the capture and archiving of electronic communications, even more difficult.  In May 2011, Smarsh, Inc. published a report (Report) that detailed the findings of a survey of compliance professionals at various types of financial institutions, including investment advisers and broker-dealers, designed to identify trends in and opinions about electronic communications compliance.  The survey comprised 29 questions which were asked of 223 individuals with direct compliance supervisory responsibilities, including C-level management personnel, chief compliance officers and compliance staff members.  This article summarizes some of the key findings of the Report and lessons for hedge fund managers.  See also “Does Social Media Have a Place in the Hedge Fund Industry?,” above, in this issue of The Hedge Fund Law Report.

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  • From Vol. 5 No.2 (Jan. 12, 2012)

    SEC Enforcement Action and Bulletins Shine Spotlight on Use of Social Media by Investment Advisers

    Respondent Anthony Fields (Fields) is an Illinois accountant who operated as a registered investment adviser under the d/b/a Anthony Fields & Associates (AFA).  Fields was also the sole proprietor of Platinum Securities Brokers (Platinum), which was briefly registered as a broker-dealer.  The Securities and Exchange Commission (SEC) has issued an order commencing cease and desist proceedings against Fields, AFA and Platinum for various alleged violations of the securities laws.  Many of those violations arose from postings and offerings of fictitious securities made on the respondents’ websites and social media sites, including LinkedIn.  The SEC seeks injunctive relief, disgorgement of profits and civil penalties.  Simultaneously with the commencement of this enforcement proceeding, the SEC issued a “Risk Alert” covering compliance issues that arise when investment advisers use social media and two alerts that warn individual investors of the potential risks posed by social media sites.  This article summarizes the key points from the SEC’s order and the related alerts.  See also “Legal Considerations for Hedge Fund Managers that Use Social Media,” The Hedge Fund Law Report, Vol. 4, No. 14 (Apr. 29, 2011).

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  • From Vol. 4 No.14 (Apr. 29, 2011)

    Legal Considerations for Hedge Fund Managers that Use Social Media

    In late 2010, the SEC sent a “sweep” letter (the “Sweep Letter”) to a number of registered investment advisers requesting information on their involvement with social media and related recordkeeping practices.  The Sweep Letter appears to signal heightened regulatory awareness that social media websites such as Facebook and LinkedIn are increasingly being used by investment advisers to connect with clients.  Use of these sites by hedge fund and other private fund advisers may present regulatory issues, however, under the advertising rules of the Investment Advisers Act of 1940 (the “Advisers Act”) and the exemptions for private placements under the Securities Act of 1933.  With the repeal of the private adviser exemption from Advisers Act registration still on track for July, social media compliance by advisers to hedge funds and private funds can present important compliance issues.  In a guest article, Diana E. McCarthy and Andrew E. Seaberg, Partner and Associate, respectively, at Drinker Biddle & Reath LLP, detail: the specific items requested in the Sweep Letter; existing regulatory guidance on social media use (including guidance with respect to testimonials and supervision); advertising issues raised by social media; how hedge fund managers can develop a robust social media policy; personal use of social media and related compliance policies; and business use of social media and related compliance policies.

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