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U.S. broker's Facebook misstep leads to fine, suspension

By Suzanne Barlyn

(Reuters) - A Facebook post defending a drug company stock has spurred more than a year of headaches for a broker who has been fined and suspended in a case that highlights the perils of running afoul of the securities industry's social media rules.

Charles Matisi's 2012 Facebook post took issue with a Barron's article that cautioned against buying Arena Pharmaceuticals Inc's stock too high, given some of the hurdles it faced to bring a key weight loss drug to market.

First, his firm concluded that he violated its social media policy, and he resigned from his job at MML Investors Services, a Springfield, Massachusetts-based unit of Massachusetts Mutual Life Insurance Co, the firm said.

Then, he had to answer to Wall Street's watchdog, the Financial Industry Regulatory Authority, which slapped him with a $5,000 civil fine and 10-day suspension last week, according to a settlement agreement.

"There's no safer weight loss drug," he had written. Though he did not name the drug in his post, the firm recently won approval for weight-loss drug Belviq.

His remark was "not fair and balanced," FINRA said in the settlement, and omitted key details, including the fact that he and 33 of his customers owned Arena shares.

Matisi, who now works for Park Avenue Securities in Woodbury, New York, a unit of The Guardian Life Insurance Co of America, neither admitted nor denied FINRA's allegations, according to the settlement filing dated September 11.

Matisi declined to comment to Reuters. He denied in a separate public disclosure filing that he violated any company policy. A Massachusetts Mutual spokeswoman said the company "fully cooperated" with FINRA's review of this matter.

While FINRA's sanctions against Matisi are not substantial, the case illustrates how easily brokers' social media activities can land them in hot water.

"It's a little case, but it's pretty educational," said Ignatius Grande, a New York-based lawyer who advises companies on social media issues. "Whatever you write, you have to expect it's going to come back to haunt you," Grande said.

Regulators consider posts by brokerages and their employees as types of communications with the public, subject to longstanding industry rules. In general, they can't be misleading or omit material information.

Some posts are even subject to FINRA's advertising regulations, which require pre-approval by the firm's management. Firms must also monitor and store the posts, as they do with email. Most firms also have their own, strict policies about advisers' social media use.

There have been just a handful of enforcement cases against advisers about their social media posts since 2010, when FINRA first issued guidance about using social media sites. FINRA fined and suspended a broker in 2010, for example, for Tweets she made about a stock in which she had a financial interest.

But a recent FINRA effort to check up on how firms are using social media and policies they have in place could yield more such cases, Grande said. The regulator, in June, began collecting details from firms about their social media use and monitoring, among other things.

PERMITTED TO RESIGN

Matisi's troubles began in mid-2012, when a financial commentator posted a remark on an online bulleting board stating that shares of a Arena had "climbed high" because of a widespread belief that the Food and Drug Administration would approve an obesity drug the company developed. She also cited the cautionary Barron's article.

Matisi responded through his Facebook profile, which identified him as a financial planner at MassMutual Financial Group, according to the FINRA settlement filing. He described the article as "idiotic" in addition to defending the drug.

Matisi, at the time, owned 10,000 shares of the stock, worth about $60,000, and about 33 of his clients also owned the stock, but he did not disclose these stakes in the posting, according to the FINRA settlement.

The proliferation of social media sites and scrutiny by regulators has led many firms to develop strict internal policies about using the sites. Some firms still prohibit their advisers from using social media.

At Massachusetts Mutual Life Insurance Co, brokers can use only sites that the company approves, a spokeswoman said. Their social media activities are supervised and they must follow certain procedures to ensure compliance with regulatory obligations, she said.

Matisi's official records show that he was "permitted to resign" from his firm. However, he has affixed a comment noting that he resigned voluntary because he was unhappy at the firm.

(Reporting by Suzanne Barlyn; Editing by Linda Stern and Tim Dobbyn)

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