There is no formula for success on social media — but there is certainly a very wrong way to do it, InvestmentNews writes. The Securities and Exchange Commission and the Financial Industry Regulatory Authority watch advisors’ social media carefully, and with potential real-world consequences, compliance is key, the publication writes.
Learning from Elon Musk’s Costly Mistakes
In August, Elon Musk tweeted that he had funding to take his brainchild electric car company Tesla private, causing the company’s stock price to rocket, InvestmentNews writes. However, the SEC claimed that this was misleading and filed suit on September 27, the publication writes.
This was due to the funding not being as secure as implied, Keith Marks, executive director of Ascendant Compliance Management, tells InvestmentNews. Messages being full, fair and not misleading is crucial but can prove difficult on social media with short missives often being open to misinterpretation, Marks tells the publication.
The SEC’s suit against Musk led to a $20 million fine and Musk stepping down as chairman, according to InvestmentNews. Musk, however, then called the SEC the “Shortseller Enrichment Commission,” and Tesla was made to pay a further $20 million and appoint two new board members, the publication writes.
While Musk draws followers — over 22 million on Twitter — this episode shows why social media posts should be reviewed for compliance, InvestmentNews writes. RIAs and broker-dealers should have social media policies and procedures, and advisors must check with their general council that content abides by company and regulatory requirements, according to Anthony Lendez of BDO, InvestmentNews writes.
A common mistake advisors make on social media is using hyperbole, which can be considered misleading, as well as mentioning specific trades or investments, Marks tells InvestmentNews writes. The majority of issues involve exaggerating qualifications or providing performance indicators without proper disclosure, Marks tells the publication.
