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Trader Tried to Manipulate Stocks with False Tweets

A federal court entered final judgement against a Scotland-based trader that used false tweets to drive down the value of publicly-traded securities. In two instances, the defendant used fake twitter accounts to announce that regulatory agencies were investigating the firms. He then tried to buy the stocks on the resulting dips, although he waited too long to trade and did not profit. The SEC faults the defendant for causing significant market disruption, leading to trading halts.

The use of social media to disseminate false information is a big social issue, but such conduct has significant economic and legal consequences in the securities markets. Perhaps, the regulators (led by the SEC’s Cyber-Unit) should engage with social media platforms to determine how to regulate the third-party distribution of information about specific issuers.

FINRA Posts Social Media and Digital Content Guidance

FINRA has published a Regulatory Notice that provides guidance on the content, recordkeeping, and supervision of certain digital communications.  FINRA clarifies that text and chat messages with clients must be retained as customer communications to the same extent as written or email communications.  FINRA also offers guidance on when broker-dealers adopt or become entangled when using hyperlinks and other third party content.  Sharing content through hyperlink will make a firm responsible for the third party content unless the third party site is dynamic, ongoing, and not influenced by the firm.  However, a firm may not use a link to a third party that the “firm knows or has reason to know contains false or misleading content.”  FINRA also offers guidance on the use of native advertising, mandating that such content disclose the firm’s name, any relationship, and whether mentioned products or services are offered by the firm.  FINRA will allow unsolicited third party opinions posted on social media sites (e.g. “likes” on Facebook) so long as a registered representative does not subsequently endorse the third party opinion.  FINRA makes clear that the guidance does not change prior rules and does not interpret SEC rules that apply to advisers.

OUR TAKE: Give FINRA credit for its ongoing regulatory guidance that reflects evolving social media and digital content.  The guidance on texts, chats and hyperlinks are fairly reasonable.  The challenge for compliance officers is to find emerging technologies and systems to capture the emerging content.