To Be Reviewed or Not To Be Reviewed: The SEC Provides Guidance on Filing Requirements for Certain Electronic Communications

Last week, the Securities and Exchange Commission (“SEC”) published additional guidance on social media filings, in order to clarify the obligations that mutual funds and other investment companies have in seeking review of materials posted on their social media websites.  This was done partly to increase transparency of federal securities laws and regulations, and partly as a response to claims by the Financial Industry Regulatory Authority (“FINRA”) (the body responsible for reviewing those advertisements required to be submitted by mutual funds and other investment companies) that several “unnecessary” submittals have occurred due to firms being overly-cautious.

Certain communications posted by mutual funds and other investment companies are required to be submitted to FINRA prior to their use in order to ensure that the content is not misleading to an investor.  This applies not only to printed materials, but also to those communications posted on interactive websites.  The SEC’s “guidance update” focuses on the kinds of interactive content the SEC believes would and would not be subject to a requirement to file with FINRA, while giving some “real life” examples.  Obviously, whether a communication need be filed ultimately depends on the content, context, and presentation of the communication.  Some of the content the SEC cited as examples of communications generally NOT needing to be filed include:

  • “An incidental mention of a specific investment company or family of funds not related to a discussion of the investment merits of the fund;”
  • “The incidental use of the word “performance” in connection with a discussion of an investment company or family of funds, without specific mention of some or all of the elements of a fund’s return;”
  • “A factual introductory statement forwarding or including a hyperlink to a fund prospectus or to information that is filed pursuant to Section 24(b) or Rule 497;” 
  • “An introductory statement not related to a discussion of the investment merits of a fund that forwards or includes a hyperlink to general financial and investment information such as discussions of basic investment concepts or commentaries on economic, political, or market conditions:” and
  • “A response to an inquiry by a social media user that provides discrete factual information that is not related to a discussion of the investment merits of the fund.”

The SEC then goes on to give certain examples of those communications that generally would be required to be filed with FINRA, including (i) a discussion of fund performance that gives specific mention of a fund’s return, and (ii) a communication that discusses the merits of a fund. 

While the SEC’s update is helpful in screening certain communications, it is not an exhaustive list, and great care should be given as to whether or not postings made on websites require review prior to their use.  For further information about this, or other related topics, please contact us at (619) 298-2880 or at info@jackolg.com.

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