I have received many comments and questions regarding the post by Scott Gottlieb, President of U.S. Compliance Consultants. Scott has provided some additional thoughts on the compliance dangers of financial advisors using social media.

Since my original post regarding compliance dangers for investment advisers using social networking web sites such as LinkedIn and Twitter, both readers of this esteemed blog and clients of my esteemed employer, U.S. Compliance Consultants, LLC, have raised questions about other, more specific internet/advertising scenarios. Rather than respond to each individual real or hypothetical situation, I would like to posit a rule of thumb to help guide advisors with determining what may or may not run afoul of the advertising restrictions of the Investment Advisers Act of 1940. Of course, I must first offer a caveat that a “rule of thumb” has all the legal significance of “cross my heart and hope to die” or other such dictums and it is not meant to be strictly accurate or reliable for every situation.

The responses offered to the earlier post can be divided into two very broad categories. The first category covers those instances wherein the investment adviser takes no affirmative action to interact with the web site or the information in question. The second category covers situations wherein the investment adviser does have some interaction with the web site that contains the potentially prohibited material.

Clearly, an investment adviser would not to be held liable for content on those web sites that the adviser neither controls, nor is in some other manner an active participant in the life of the site. If I had to offer an analogy, this situation is akin to a magazine or newspaper publishing an unsolicited article about the adviser. Not much anyone can do about that except hope that it is positive and, if it is, frame it and put it up in the foyer of your office for all to see. However, if an adviser either controls the web site (e.g., controls the content of the site) or tacitly approves of the web site (e.g., by having an active dialogue with others through the web site) or in some other way endorses the content posted on the web site (e.g., by linking to the web site), then that is a different matter entirely. I would surmise that in such cases, regulators would be more likely to hold the adviser liable for any prohibited material posted on any such site.

While advisers are certainly correct for having a concern about the regulatory parameters of this new avenue of communicating with clients and potential clients, the SEC is typically going after willful violations of the Advisers Act and not passive omissions. If an investment adviser monitors the social net working activities of its supervised persons, they will greatly reduce the chances of being cited for a violation. Of course, monitoring the activities of supervised persons to reduce compliance violations is undoubtedly one rule of thumb that will hold true every time.

About Scott Gottlieb & U.S. Compliance Consultants

Scott Gottlieb is President of U.S. Compliance Consultants, LLC,a full-service consulting firm that specializes in compliance and registration services for investment advisers and hedge funds.

Prior to founding U.S. Compliance Consultants, Scott practiced corporate and securities law in the New York and Los Angeles offices of Kelley, Drye & Warren LLP, an international law firm, as well as with various regional law firms. During the course of his legal career he has advised clients on federal securities regulation, investment adviser compliance, broker-dealer regulatory issues, venture capital financings and international joint ventures.

Scott is a frequent contributor to the Schwab Institutional Compliance Review newsletter and has been designated acompliance expertfor AdvicePointä, the online investment adviser community sponsored by Reuters, the global information company. Scott is an honors graduate of Tufts University and the University of Connecticut School of Law.Prior to law school, Scott maintained his Series 7 license as a Financial Consultant with Merrill Lynch & Co., Inc.

U.S. Compliance Consultants provides complianceconsulting to clients advising on assets in excess of $160billionand yet, its philosophy remains that the adviser with $10 million under managementshould be afforded the same high level of service and expertise as the adviser managing $1 billion.U.S. Compliance Consultants is a preferred service provider for all the major broker-dealer/custodians in the investment advisory profession including, Schwab Institutional, TD Ameritrade Institutional, Raymond James Financial Services, Scottrade Advisor Services and Fidelity (pending Summer 2009).For more information about U.S. Compliance Consultants, please visitwww.uscomplianceconsultants.com.

Important Information (really)

Though each and every one of the opinions offered herein is guaranteed to contain at least one pearl of wisdom, these opinions are mine alone and do not necessarily reflect the viewpoint of U.S. Compliance Consultants, LLC.Despite 100% certitude on my part as to their validity, please understand that an opinion is just that and is not intended to be treated as absolute fact or serve as the basis for a legal opinion.Anything stated in this blog post is for informational purposes only and is not intended to address any specific situation or particular circumstance. Despite my efforts to always be completely accurate, the cold, hard truth is that this post may contain errors. At the very least, this post may reflect rules or regulations that were in effect at that time of posting, but are hopelessly outdated just a few months later.

As a result, the information imparted in this blog does not constitute legal, tax, accounting, financial or any other type of advice and does not create a client relationship with U.S. Compliance Consultants, LLC.Of course, if you would like to become a client of U.S. Compliance Consultants, LLC, my sources tell me that they would be more than happy to have you join the fold. You need only give them a toll-free call at 888-798-2930 or visit their web site atwww.uscomplianceconsultants.com.