SEC Investment Management Division Issues Guidance Concerning Social Media and Filing Requirements for Mutual Funds
Last week, the SEC's Investment Management Division released its first guidance update of the year. The topic addressed by staff: whether certain interactive content posted on social media should be filed publicly by a mutual fund. The "rule" issued by the staff is as follows:
"Whether a communication need be filed depends on the content, context, and presentation of the particular communication or set of communications and requires an examination of the underlying substantive information transmitted to the social media user and communication of any other facts and circumstances, such as whether the interactive communication is merely a response to a request or inquiry from the social media user or is forwarding previously-filed content."
The staff provided examples of communications that should be filed (fund performance and investment merits of a fund) and those that need not be filed (incidental mentions of funds and discrete factual information, for instance). The update is attached here.
Why is this important and worth your intellectual time?
First, mutual fund money managers will need to pay attention to all guidance from the staff to make sure they continue to be vigilant in their public disclosures. We would expect the normal set of professionals, internal and external to an organization, to monitor and follow this guidance. Compliance firms, fund administrators, law firms, and the like will properly update their manuals and ensure correct disclosure actions are followed. Mutual fund managers should expect inspections to include staff review of public disclosures, and will want to ensure their trustees and others remain well-informed about a robust compliance program.
Second, for those money managers not currently running mutual fund money but considering whether to do so, it is key to stay on top of the legal, regulatory, and compliance landscape. Raising capital is always difficult, and we and others observe the gradual decline of the classic 2 & 20 compensation scheme for hedge fund managers and 1.5 and 20 fee structure for private equity fund managers. New alternative investment managers need to continue considering the viability of mutual fund products, as direct formation costs for funds continue to shrink. Speed to market (compared to private fund formations) may lead managers to raise mutual fund assets, depending on the desired fund size and investor base, but there are significant regulatory and compliance areas of focus.
Finally, managers of all kinds need to stay on top of requirements imposed not just by the SEC (the 33 Act, the 34 Act, and the two 40 Acts) but FINRA and the exchanges as well. In this update, the SEC staff reminded readers that FINRA had previously issued guidance in 2010 under its rules generally to the effect that interactive content was exempt from filing. The SEC's guidance here, under its rules, reaches a contrary conclusion. The required practice, of course, will be to file if required by any entity with jurisdiction over a money manager.
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