Blogs have become important tools in the investment management industry and have allowed even the most unsophisticated computer user (ahem….hedgefundlawblog….) to post useful thoughts and information for other industry participants to examine and opine upon.
Some hedge fund managers may want to use the internet and blogs to vet ideas or to discuss certain parts of their strategy, which begs the question whether such activities are legal under the federal (and state) securities laws. As we see it, there are three central issues which a hedge fund manager must be aware of when deciding whether to blog: (i) the Regulation D rules prohibiting general solicitation, (ii) the “no holding out” requirement for investment advisor exemption, and (iii) the anti-fraud rules (no manipulation). We will examine these issues in turn and then provide recommendations.
Regulation D rules prohibiting general solicitation
The Regulation D rules apply to all hedge fund managers. Accordingly, hedge fund managers always need to be aware of what they say and do so that their actions are not construed as soliciting clients. Because anyone can access information posted on a non-password protected website, there is the possibility that a non-password protected blog could be viewed by a large amount individuals whom the manager does not have a “pre-existing” relationship with. As such, the manager should be very aware of what he is saying on his blog.
“No holding out” requirement for investment advisor exemption
At the federal level, hedge fund managers are exempt from investment advisor registration provided they do not hold themselves out generally to the public as investment advisors. For such hedge fund managers they need to be concerned about “holding out” in addition to the Regulation D prohibition against general solicitation.
While there is no statutory definition of “holding out” the investment advisor should be careful to make sure that potential reader do not think that they are recieving investment advice or that the blogger is in the business of providing investment advice for compensation.
Anti-fraud provisions (no manipulation)
The anti-fraud provisions of both the Investment Advisers Act (which applies to non-registered hedge fund managers) and of the Securities Exchange Act are very broad in scope and can be used as a basis for actions against hedge fund managers. Accordingly, managers should be very aware of what they are blogging and should make sure that their posts cannot be construed as fraudulent or as a way to manipulate the markets.
We recommend the following for hedge fund managers with blogs:
- Do not ever mention the name of the hedge fund in the blog.
- Do not mention the name of the management company – make sure the reader understands the opinions are the opinions of the manager only and not necessarily any employer of the blogger.
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