The U.S. Securities and Exchange Commission issued two alerts pointing out risks investors and advisory firms face when using social media like LinkedIn and Facebook.

“Fraudsters are quick to adapt to new technologies to exploit them for unlawful purposes,” said Robert B. Kaplan, co-chief of the SEC Enforcement Division’s Asset Management Unit, in a statement. “Social media is no exception, and today’s enforcement action reflects our determination to pursue fraudulent activity on new and evolving platforms.”

The alerts were issued in conjunction with an administrative proceeding initiated against an Illinois-based advisor who allegedly used LinkedIn to sell fictitious securities.

Broker-dealers, financial service professionals, and insurance agents and brokers have been struggling to determine how to effectively use social media without running afoul regulatory requirements, and some have avoided social media entirely out of fear.

The guidance is among the first official guidance for how best to handle these emerging media.

One of the SEC alerts – a National Examination Risk Alert titled “Investment Adviser Use of Social Media” – provides staff observations based on a review of investment advisers of varying sizes and strategies that use social media. In growing numbers, registered investment adviser firms are using social media to communicate with existing and potential clients, promote services, educate investors, and recruit new employees.

“As investment advisers increasingly utilize social media to communicate with clients and potential clients, firms need to be mindful of the applicable standards governing those communications,” said Carlo di Florio, director of the Office of Compliance Inspections and Examinations (OCIE), in the statement.

The alert reviews concerns that may arise from use of social media by firms and their associated persons, and offers suggestions for complying with the antifraud, compliance, and recordkeeping provisions of the federal securities laws. The alert notes that firms should consider how to implement new compliance programs or revisit their existing programs in the face of rapidly changing technology.

The SEC also issued an Investor Alert titled “Social Media and Investing: Avoiding Fraud” prepared by the SEC Office of Investor Education and Advocacy. The alert aims to help investors be better aware of fraudulent investment schemes that use social media, and provides tips for checking the backgrounds of advisers and brokers. A new Investor Bulletin titled “Social Media and Investing: Understanding Your Accounts” contains best practices including privacy settings, security tips, and password selection aimed to help social media users protect their personal information and avoid fraud.

“More and more, investors are using social media to help them with investment decisions. While social media can provide many benefits for investors, it also makes an attractive target for fraudsters,” said Lori J. Schock, director of the Office of Investor Education and Advocacy.

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