Got A Hot Tip On Twitter? FINRA Kindly Asks That You Retain That Message
The wild west days of social networking as a platform for stock tips and under the radar information exchange may be coming to an end. Or at least FINRA is finally realizing that there is more to stock manipulation than meets the eye, and in a radical change in policy (which up to now had been non-existent on the matter), FINRA will start policing and pouring through tweets, after announcing that "securities firms must keep copies of all business-related
communications on social networks, whether those communications are
official or from associated persons." Yet indicating just how woefully behind the times the SEC's much-feebler cousin is, FINRA has admitted that "the technology to grab those messages might not exist." The reason why FINRA should be concerned, as Securities Industry News highlights is that "Every Wall Street company – except possibly the smallest ones – have
employees using social networks, creating potential liability problems
for their employers, for whom they might not be speaking. However, many
firms are also actively using these new platforms themselves, to reach
out to customers, the general public, and potential new recruits."
A name all too familiar that may soon fall in the crosshairs is none other than MBS seller extraordinaire, PIMCO:
PIMCO, which operates more than 130 funds and has $1 trillion under
management, uses its Facebook page to showcase blog posts by company
executives on such topics as emerging markets interest rates
predictions and rising unemployment rates.
Both companies allow visitors to post comments on their Facebook pages – and include disclaimers about this type of content.
“We reserve the right to remove any post at any time for any reason,
but if we don't remove a post that doesn't mean PIMCO endorses its
content or view,” PIMCO says in a disclaimer on the page.
On the other hand, the problems posed by Facebook and Twitter, which is just a glorified mIRC chat client but packaged in a tidy little $1 billion venture capital gift box, for FINRA and other regulators are nothing new.
It's a replay of what started to occur in 2001 with the spread of
instant messaging on personal computers, said Eric Young, FaceTime's
director of field services.
FaceTime has expanded its instant messaging tools, which let company
managers watch the flow of messages that occur over such services as
AOL Instant Messenger and MSN Messenger about their companies to
include social networks like Facebook, Young said. These include
mapping employees to their Facebook user names, and to monitor all
communications with the service that go through the corporate network.
Employees who work remotely can be monitored if they use the company's
virtual private network. FaceTime can even monitor communications that
go through mobile devices such as Blackberries, as long as the employer
supplied the device and is able to store a piece of software on it that
allows, in effect, digital eavesdropping.
However, technology can't do much to monitor communications
happening on personal computers or smart phones purchased and
maintained by employees on their own and at their own expense.“If it's a completely personal device, there are issues,” Young admitted.
Howard Lindzon, who has propagated StockTwits as a Twitter-based platform in which traders indicate in real-time just how much they are chasing any given momentum, had this to say:
Howard Lindzon, CEO of StockTwits and a partner at private equity
fund Knight's Bridge Capital Partners calls social networking “a
“I don't know what you can do,” he said. “It's so open right now.”
Lindzon himself uses Twitter, and also has Facebook and LinkedIn pages.
The only thing that companies can really do, he said, is to set
policies for their employees describing appropriate use of social
At StockTwits, for example, the company has a FaceBook page, and
employees use Twitter. “So far, at least, people are behaving
themselves for the most part,” he said.
Billion-headed yes. Billion dollar... not so much. Because if traditionally skittish VC firms realize that this new "paradigm" of information exchange is under fire by regulators and may have a boatload of hidden liabilities, watch valuations, especially for advisory-related substitutes, go up faster than Goldman Sachs' stock price courtesy of a 1,000 bps steep 2s30s.
It is likely that should FINRA truly crack down on the likes of Twitter, that any incremental utility that this platform has served in the past (and this is very much debateable) will promptly disappear:
The problems with uncontrolled messages from good or bad intentions of
employees aren't unique to social networks, Osterman says. Sensitive
communications may happen on any number of platforms – telephone calls,
email messages over private accounts, even neighbors chatting across a
And the employer can’t easily watch what’s going on, in sites or
communications that employers conduct in private. If employers attempt
to get access to private accounts, “it gets into a real Pandora's box,”
Osterman says. “You're going to be balancing the free speech rights of
individuals versus the right of the employer to protect their name from
being dragged through the mud.”
Nonetheless, it will become more common for employers to monitor
private communication channels with tools like Facetime's for
inappropriate communications by employees, especially when they mention
or relate to the employer or their line of business.
“If you have a personal Twitter account, and you're a registered
representative selling securities, in a sense you are borrowing on the
integrity [of your employer] and their name to get followers or get
your advice viewed more favorably,” Osterman said.
In that case, an investment firm can – and should, according to
Osterman and, indirectly, by the FINRA guidelines – require employees
to notify supervisors of any Twitter, Facebook or other social network
or service where they discuss securities or investments in any fashion.
Beyond that, he says, the policies should allow their employers to not
just follow their employees, but keep copies of what gets said.
Then again, with the Attorney General's office and the SEC now actively eavesdropping and intercepting every in- and outbound email into the organized mafia, pardon, hedge funds and prop desks, what ends up happening with LinkedIn and Twitter may very well seem like peanuts in the grand scheme of things.