Laurie Green is a Partner in our Ft Lauderdale office, Danielle Price a Partner in our Miami office and Michael George Taylor a Partner in our Portland office
On March 15, 2013, the SEC's Division of Investment Management (the "division") issued guidance on the filing requirements for electronic communications (i.e., chat rooms or social media). The division issued the guidance after receiving questions as to whether certain electronic posts should be filed under either Section 24(b) of the Investment Company Act of 1940 ("Investment Company Act") or Rule 497 of the Securities Act of 1933 ("Securities Act") if the posts are exempt from filing under Financial Industry Regulatory Authority (FINRA) Rule 2210. Section 24(b) of the Investment Company Act prohibits investment companies from sharing any "advertisement, pamphlet, circular, form letter, or other sales literature" with investors unless the communications have been filed with the SEC or are filed 10 days after the information is shared. Rule 497 of the Securities Act requires information about performance of registered investment companies be filed with the SEC or FINRA. Previously, FINRA has determined that electronic communications are exempt from the FINRA Rule 2210 filing requirement because they constitute a "public appearance." In 2010, FINRA stated that even if the communications are exempt under FINRA Rule 2210, the communications could still require filing under the Investment Company Act or the Securities Act.
The division concluded that the issue of whether electronic communications need to be filed depends on the "content, context, and presentation of the particular communication or set of communications" which needs an evaluation of the information provided, including whether the communication is a response to a question or a request from the public. The division provided several examples of electronic communications that do not generally require filing. The examples include:
- an accidental reference of a particular investment company or funds that are not related to a discussion of the fund's investment merits
- the accidental use of the word "performance" when discussing an investment company or funds, without referring to the elements of a fund's return
- a statement providing a hyperlink to the prospectus of a fund or information filed under Section 24(b) of the Investment Company Act or Rule 497 of the Securities Act
- a statement that does not relate to the discussion of investment merits of a fund that provides a hyperlink to "general financial or investment information"
- a response to a question that includes discrete information unrelated to the investment merits of the fund (which may refer the public to the fund prospectus, information filed with FINRA, or to use a different form of communication to discuss the question with the issuer)
The division also provided examples of electronic communications that generally require filing. These examples include:
- a discussion of fund performance that refers to, or promotes, some or all of a fund's return
- a communication started by the issuer that references the fund's investment merits
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
