Social Networking and InternetMarketing in the Financial ServicesSector

Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the UnitedStates; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and JSM, a Hong Kong partnership, and its associated entities in Asia. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.

Sector

How compliant is your program?

Michele (Mitch) L. GibbonsPartner

212-506-2180

mgibbons@mayerbrown.com

July 29, 2009Michael R. ButowskyPartner

212-506-2512

mbutowsky@mayerbrown.com

What is social networking?

• Social networking allows people or groups to join together incyberspace with the goal of connecting with other people or groupsonline.

• Typically, users who sign up will have a profile page that displaystheir photo and lists their name and other biographical information,their interests and groups, their educational background and where

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their interests and groups, their educational background and wherethey are employed.

• Generally, online profiles are publicly available so anyone can readthem. One can, however, take steps to make their profile only

available to the friends or colleagues they are linked to.

• Users form groups to share common interests.

• Many sites allow users to link to additional information, sharephotos, videos, comments, etc. They can also hold virtual events(such as a webinar), polls or competitions.

DialogueWikis

PhotoSharing

Sites

VirtualWorlds

MicroBlogs

RSS

Blogs

OnlineChat

SocialMedia

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VideoSharing

Sites

SocialNetworks

Widgets

RSS

MessageBoards

Podcasts

SocialBookmarks

Media

RSS – Really Simple Syndication

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Follow me on . . .

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Social Media Trends

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Regulatory Concerns

• Public securities advice and recommendations

• Advertising and marketing regulations

• Communications with clients and prospective clients

• Securities offering regulations

– Private placements

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– Investment company products

• Research and analyst rules

• Anti-fraud rules

• Solicitation rules

• Books and records rules

• Privacy regulations

Broker-DealersFINRA Guidelines on Social Networking

• If the information is publicly available and the registered representativeis using it for any work-related matter, any communication on thatpage related to the firm’s business would be considered anadvertisement, just as it would on the firm’s public website.

• If the profile is restricted to the representative’s specific contacts or is

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• If the profile is restricted to the representative’s specific contacts or ispassword protected, the communication is considered sales literature.

• An email or instant message sent to 25 or more prospective retailcustomers is considered sales literature.

• An email or instant message is considered correspondence if it is sentto i) a single customer (prospective or existing) or ii) to an unlimitednumber of existing retail customers and/or less than 25 prospectiveretail customers (firm-wide) within a 30-day period.

• Chat rooms, blogs, micro-blogs, bulletin boards and similardiscussions are considered public appearances.

Broker-Dealer Regulatory Concerns

• Standards of Commercial Honor andPrinciples of Trade (Rule 2010)

• Communications with the Public(Rule 2210):

– Must be based on principles of fairdealing and not omit materialinformation, particularly risk

• Supervision (Rule 3010)

• Books and Records (Rule 3110)

• Recommendations to Customers(Suitability) (Rule 2310)

• Conflicts of Interest (Rule 2711)

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information, particularly riskdisclosures;

– Must not make exaggerated,unwarranted, or misleading claims;

– Must give the investor a sound basisfor making an investment decision;and

– Must not contain predictions orprojections of investment results.

• Approval and Recordkeeping (Rule2210(b))

• Member Firm Name Required (IM2210)

• Current information should be used

• Linking to other websites

• Material from third-party websites

• FINRA membership and linking toFINRA websites

• State/Non-U.S. registrationrequirements

Investment Adviser Regulatory Concerns

• “Holding out” as an adviser – registration exemptions

• Advertisement – anything that is meant to keep or attract advisoryclients (Advisers Act Rule 206(4)-1)

– No testimonials

– No past-specific recommendations

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– Limited use of charts and graphs

– No material misstatements or omissions

• Fiduciary duty

• Antifraud rules

• Solicitation rules

• Securities recommendations

• Insider trading

Investment Funds

• Private Funds

– No general solicitation or advertising!

• Mutual Funds

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• Mutual Funds

– Investment Company Act advertising rules

– Prospectus delivery requirements

– FINRA filing requirements

Other Concerns

• Reputational risk

• Confidentiality

• Employment policies (anti-harassment, etc.)

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• Employment policies (anti-harassment, etc.)

• Defamation

• Intellectual property

• Potential use in litigation*

* Look for Mayer Brown’s e-discovery monthly tips addressing social networking July 2009.

Social Networking – Managing the Inevitable

• Control the firm’s use

– Choose acceptable media: moderated blogs, businessnetworks, etc.

– Posting guidelines

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– Posting guidelines

• Control customer use

• Control employee use at the firm

• Employee use outside of work

You can not monitor and supervise social mediapractices unless you are familiar with them.

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It’s time to log on.

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Blocking social media websites is notenough.

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• Twitter connects people by allowing users to postperiodic updates on what they are doing or thinking(limited to 140 characters or less).

• Family, friends and even strangers can read these

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• Family, friends and even strangers can read theseposts and reply to them.

• Industry experts report that 3.4 million unique visitorsvisit Twitter each month—and that number is growingrapidly.

• Median age of user = 31.

• Often used as a news source.

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Twitter

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• Business-oriented professional networkingwebsite (stresses résumés, industry-relatedgroups, networking events and careermarketing)

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• > 40 million users. Median age of user = 40.5

• Users can have a public or private (restrictedaccess) profile, but much information isavailable even if you elect to have a privateprofile

• First question – where do you work?

Recommendations – example LinkedIn

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Recommendations – example LinkedIn

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“Related to business” – profile setup

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Social Network Constant Prompts:

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Social Network Constant Prompts:

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Social Network Constant Prompts:

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(Any answer will likely involve “work”)

Policies and Procedures

• Regulatory Guidance

– FINRA Notice 07-59 Supervision of Electronic Communications

– FINRA Guide to the Internet for Registered Representatives

– FINRA Rule 2210

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– FINRA Rule 2210

– FINRA Podcast on Social Media

– Investment Advisers Act Rule 206(4)-1

– SEC Release on the Use of Electronic Media

– Books and Records Rules

Employee Policies

• Establish and set up compliance guidelines and policies.

• Block access to social networking sites on the company’s network.

• Choose one of the three below for rules regarding employees’ personalprofiles:

– Allow employees to post information about the firm, but require pre-approval for all such postings;

– A limited prohibition against allowing information to be posted to the

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– A limited prohibition against allowing information to be posted to thepublic profile* portion of any social networking website; or

– An absolute prohibition against employees communicating anyinformation about the firm (other than the name of their employer) on asocial networking website.

• Educate employees about regulatory and legal risks and complianceprocedures.

• Require employees to attest that they are in compliance with the firm’s rulesregarding advertising and electronic communications.

• Set up an internal audit organization to review what employee’s are sayingon the social networking sites.

• Take punitive action when necessary.

Employee Internet Use Sample Guidelines

• Think First. Remember you are publishing in a public forum, so don’t publish anythingthat you wouldn’t want to be viewed by your colleagues or the general public.

• Maintain Confidentiality. Identities of our investments, investors and business partnersmust be held in confidence to the extent appropriate for that relationship.

• Securities Laws. It is very easy for these types of communication to violate securitieslaws.

• Financial Performance. Do not make statements about the financial performance ofthe company.

• Identify Yourself. If you are commenting or publishing on topics related to your job,

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• Identify Yourself. If you are commenting or publishing on topics related to your job,identify yourself as an employee of the firm.

• Disclaimers. You should make it clear that you are expressing views that are your ownand not those of the Company.

• Be Respectful of Your Colleagues, the Company, and Our Competitors. Rumorsand gossip spread like wildfire on the Internet. Do not contribute anything that violatesthe Company’s sexual harassment policy or similar human resources policies.

• Copyright. Comply with copyright laws. “Fair use” doctrine is rarely a useful defense inthe commercial context.

• Use of Logos or Service Marks. The company’s logo or service mark cannot be usedwithout the written permission of the General Counsel.

• Anonymous Contributions. The same cautions and restrictions on communicationsapply to supposedly "anonymous" blogs, comments or posts.

Firm Policies – Sample broker policy

Personal Internet Websites and Internet Profiles

• Employees may not maintain their own web page and/or other internet site with any business, securities, commodityfutures, other investment-related content or communications that have not been approved by the Chief ComplianceOfficer.

Use of News Groups, Bulletin Boards, Blogs or Chat Rooms

• With respect to communications posted by associated persons of the Firm on electronic bulletin boards, messageboards, blogs and similar media, such materials shall be considered advertisements because such material can beviewed by anyone with access to these services. Accordingly, the designated principal shall review and approve alladvertisements before use and a copy of such materials shall be retained in the Firm’s books and records inaccordance with Exchange Act Rules 17a-3 and 17a-4.

• Internet or third-party service news groups, interactive electronic conversations (through direct links or “chat rooms”),bulletin boards and the like are not to be used to talk up, talk down or otherwise discuss any security, commodity,

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bulletin boards and the like are not to be used to talk up, talk down or otherwise discuss any security, commodity,other investment, investment strategy or company or other entity that has issued or is proposed to issue securities.

• These services are not to be used to discuss any customer or customer account or as a means of solicitingcustomers. The foregoing prohibitions apply even if the communication is from a personal account, the employeeuses a pseudonym or does not identify himself/herself as a Firm employee. In addition, information received fromnews groups, bulletin boards and chat rooms must be regarded as obtained from a source of unknown reliability andshould be independently verified. Rumor and speculation are not to be the basis for trading.

• This policy also applies to social networking sites such as Facebook, LinkedIn, Twitter and MySpace.

Firm Websites

• The Chief Compliance Officer or his or her designee must approve all changes to any website(s) sponsored by theFirm prior to posting, including “look and feel” changes and updates to the website(s). Such person must alsodetermine whether the changes necessitate a new filing with FINRA.

• It is against Firm policy for employees to post any Firm proprietary information on the Firm’s Internet site, or a third-party Internet site, without prior approval of the Chief Compliance Officer. Generally, materials to be posted on theFirm’s Internet site should be reviewed and approved by the Chief Compliance Officer.

Social Media User Policies

• Be polite and stay on topic.

• We can not use this website to give specific advice.

• We reserve the right not to publish certain comments and to delete certain information from comments (suchas names and email addresses)

• We will not publish testimonials, specific advice about investing or abusive comments.

• We reserve the right to delete comments that we, in our sole discretion, believe may be unlawful, abusive,offensive, or inappropriate.

• No personal info. Other than your name, please don’t share any personal information or details about yourportfolio.

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portfolio.

• No testimonials. Industry regulations prevent us from posting stories about how well (or poorly) people havedone by investing with us or any other investment company.

• No advice. Industry regulations prevent us from posting any specific investment advice. Suggestions onhow to save money are OK, but stock tips or specific mutual fund recommendations are not.

• No responses. As much as we’d like to, we can’t respond to your comments.

• Be nice. We welcome disagreement and constructive criticism, but please refrain from general attacks onour company (particularly when unrelated to the posting), other investment companies, your fellow users,and so on.

• Please don’t use this website to request transactions or submit questions about your investments orcustomer-service issues. Instead, contact us directly.

Company Disclaimers – unknown effect

• Any opinions expressed by users are those of the persons submitting thecomments, and don’t necessarily represent the views of the company or itsmanagement.

• The company is not responsible for and does not endorse any advertisementsthat the website provider may place on this page.

• The company is not responsible for and does not endorse the content,advertising, products, advice, opinions, recommendations or other materials

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advertising, products, advice, opinions, recommendations or other materialson or available from other pages on this social network or any website ownedor operated by a third party.

• Nothing on this site shall be deemed an offer to buy or sell or a solicitation tobuy any security and no services or products are being offered in anyjurisdiction where such offer would be deemed to be a violation of law.

• The company is not responsible for the terms of use or privacy or securitypolicies at this site or other third party sites that may be linked to by this pageor other social network pages.

• You will use any third party sites and materials at your own risk.

Thank you.

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Acknowledgements and Disclaimers

• This Mayer Brown LLP publication provides information and commentson legal issues and developments of interest to our clients and friends.The foregoing is not a comprehensive treatment of the subject mattercovered and is not intended to provide legal advice. Readers shouldseek specific legal advice before taking any action with respect to thematters discussed herein.

• 2009 Copyright Mayer Brown LLP

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• 2009 Copyright Mayer Brown LLP

• Data on slide 6 was obtained from Universal Mccann ComparativeStudy on Social Media Trends April 2008.

• Company logos and website images are used for illustrative purposesonly and were obtained directly from the company websites as of July29, 2009.

• Other images used with permission or limited license.

• Online research assistance provided by Meagan Healy, ChristineParsadaian and Amanda Vermillion.