Mike Arrington at TechCrunch has a great post this morning afternoon (where does the time go?) about a startup soliciting a private round of investment over Twitter. He’s got the whole scoop but the gist of the story is a CEO of a tech startup recently twittered soliciting investments in his firm.
According to Arrington, this may or may not be a clear violation of federal or state securities law but it’s certainly toeing the line. As I think about the top 5 investment sites playing by the New Rules of Investing, these new social/Internet/data mining technologies that enable the New Rules bring with them a whole slew of legal issues.
Couple of issues top of mind
Expert communities: many of the up-and-coming expert communities are registering as Investment Advisors due to the nature of the content and the nature of their business (they are in fact giving investment advice and in certain cases, even advising on actual accounts). Once someone publishes an investment model onto a site like Covestor or Vestopia, do they also become investment advisors. By blogging their trades and doing so publicly in a non-journalistic way, are they now under the penumbra of securities law?
What if brokers start using these systems with a Series 7 brokerage license. That’s a no-no. Who’s responsible for that?
As Covestor recently started integrating further into Twitter, what’s that mean?
Long Tail Investment Opinion: Sites like SeekingAlpha are aggregating the long tail of financial research by tying in hundreds of blogger analysts. Blogging is great and we’re seeing tremendous value in both breadth of stocks and securities covered and depth of analysis being done outside traditional research sources.
Although SeekingAlpha does maintain a trading policy but it’s self-policing. SA can sense outlandish behavior but can’t possibly monitor pumping-and-dumping. Infractions in Registered Investment Advisory trading policies are serious. Clearly the RIA is reponsible but how does the SEC look at sites that publish this type of info. Are they engaged just in journalistic activities as they aggregate more professional advice?
I don’t have the answers for all these questions. My point is merely to bring to light these issues as new technologies and new models create scenarios that haven’t really surfaced previously and to date, the securities regulators haven’t sufficiently addressed the Finance 2.0 era. They’ve started, but there is a lot of catching up to do.
