The Internet is a valuable research tool for both individuals and firms. However, it can also be used as a tool to adversely affect not only people, but corporations and the securities markets. In the last decade, the securities industry has seen threats like ransomware, direct action, and file infector viruses, as well as fake websites designed to look like the real thing. Now it’s time to talk about one of the newer threats: fake news. While Facebook has taken the brunt of the blame over fake news coverage, other social media and search engines have been criticized as well, including Google, Twitter, and message boards like 4chan and Reddit.
While fake news has most recently been in the headlines regarding the presidential election, the issue has been around for quite some time. In 2008, FactCheck.org put out a list of fake news red flags dubbed the Key Characteristics of Bogusness, which included anonymous authors, spelling errors, overuse of exclamation points, and the claim that “this is not a hoax.” To spot a fake email or news story, FactCheck.org recommends that you consider the source, read beyond the headline, check the author, check the date, and check the sources. Another good resource is First Draft, which was established in 2015 as a non-profit whose goal is to provide practical and ethical guidance in how to find, verify, and publish content sourced from the social web. Among the 80+ global partners are Reuters, Bloomberg, The New York Times, The Washington Post, BBC News, CNN, International Business Times, and the Associated Press.
The industry’s regulators are also aware of the dangers of fake news. In the 1940s, the SEC learned that a company president was issuing pessimistic statements about company earnings while simultaneously purchasing the company’s stock. As a result, the Commission added Rule 10b-5 to the Securities Exchange Act of 1934, which prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security. More recently, in 2002, the SEC launched of a series of fake websites designed to lure investors who “click to buy” before doing the necessary research. When an investor tried to initiate a buy, a page popped up saying, “If you responded to an investment idea like this…you could get scammed!” In 2008, FINRA conducted a targeted exam seeking various documents from members to prove that they were monitoring for false or misleading rumors. Then in 2009, FINRA proposed a rule regarding the origination and circulation of rumors.
How can compliance protect your firm from the perils of fake news? It all starts with education. Email reviewers need to know what to look for and, as appropriate, how to report scams and have websites blocked. When a story comes through from an unknown source or with an ultra-sensational headline, you need to do some fact-checking. The same care that goes into researching a possible WSP violation needs to be used to determine if stories popping up in your firm’s email are real. When you find a fake story, further research needs to be done to make sure no one at the firm acted on it and that it did not get forwarded to anyone else inside or outside the firm. Some good fact-checking sources include: Snopes, PolitiFact, The Associated Press, FactCheck.org, and ABC News. Recognizing fake news and how to report it also needs to be incorporated into your compliance-training program, since no compliance team has time to review every single email coming into the firm each day. Empower your firm’s employees to be the first line of defense against fake news.
Zooming through your email review just to “get it done” has never been enough. Time and attention needs to be spent reviewing all types of email: client correspondence, third-party broker reports, internal communications, and news articles. Because of all the recent publicity, a firm is going to have a difficult time trying to tell FINRA that they didn’t know fake news was a problem. Your WSPs should also include reference to how your firm is complying with FINRA Rule 6140, NYSE Rule 435(5), and SEC Rule 10b-5 pertaining to false or misleading rumors.
Elin is the CEO of Elinphant a financial compliance services firm. Elin ensures compliance officers who serve clients are skilled and knowledgeable in relation to the clients business and needs. Elin is known for looking at compliance challenges as well as marketing and sales in an innovative and direct manner.