Compliance FAQ

Date of Last Revision: June 26, 2015

What is SumZero?

SumZero is the leading on-line community of buyside investment professionals with approximately 10,000 members. Membership is exclusively restricted to buyside investment professionals (defined as hedge fund, private equity, and mutual fund investment professionals). Typically, members are portfolio managers or analysts, and SumZero offers a special membership for compliance professionals to monitor the activities of the employees of their firms.

SumZero members gain admission to the site through an approval process following either the recommendation of an existing member or an application to SumZero by the prospective member or such prospective member's firm. In each case, SumZero considers each prospective member based on the representations made by or on behalf of the applicant, and follows up if further information is needed to determine whether membership qualifications are satisfied.

What is the SumZero value proposition?

SumZero operates on a simple, reciprocity based system. By submitting investment content, an analyst or portfolio manager gains access to the submissions of the entire community. SumZero's principal feature is its Idea Database, which it believes to be the largest non-proprietary database of buyside investment content in the world consisting of thousands of detailed, fundamentals-based investment write-ups with an average length of nearly 2,000 words. For examples of SumZero investment write-ups, please visit www.sumzero.com/news.

Unless otherwise agreed by SumZero, by submitting ideas on a quarterly basis, an individual SumZero member gains access to the entire database of investment write-ups. While the Idea Database is the most popular feature of the site, SumZero also has a Quick Idea Database (where members contribute short-form pitches on specific companies), and a soon to be launched Estimates Database (where members provide a detailed set of forward estimates on specific companies). An investment firm or an analyst can participate in as many or as few of these features as desired, but they only gain access to the content for the feature to which they make contributions.

How can PMs and Compliance Officers control the sharing of proprietary information and monitor other compliance matters?

Investment firms, and their portfolio managers, compliance officers and other professionals, are rightfully concerned about the divulgence and use of their proprietary research both on and off the web. SumZero's value proposition is straightforward: by submitting a limited amount of proprietary research, a buyside professional or firm gains access to the research of thousands of other buyside professionals and investment firms. Furthermore, a member obtains the critique of other members, providing an opportunity to refine the member's initial thinking and hearing what others think may be missing in the member's analysis. SumZero's founding principle is that the selective, limited sharing of investment research in an exclusive, closed-end community is in the fundamental economic interest of each member and such member's firm.

Despite the benefits of sharing ideas, Investment firms, and their portfolio managers, compliance officers and other professionals must have a mechanism to monitor the work of their analysts and other professionals online. As a result, SumZero enables compliance officers (or other senior professionals with a comparable role and responsibility) to:

  • Monitor activity on a real time and historical basis of what their analysts and other professionals are posting/commenting on the site, including email traffic;
  • Pre-approve investment content that is submitted by their analysts and other professionals;/li>
  • Request the removal of any individual or firm-level associations related to ideas, financial models, financial estimates, and other proprietary data uploaded by their analysts and other professionals if necessary at any time; and
  • Embed custom disclosure at the top of each posting to further transparency.

How does SumZero prevent the incorporation of material non-public information or other possible market manipulation on its platform?

SumZero maintains a multi-prong approach to address this critical issue:

  • First, upon joining SumZero, each member explicitly affirms SumZero's Terms of Use which states that material, non-public information is never to be shared on SumZero in any capacity. SumZero's Terms of Use specifically forbid a member to
    • act in any unlawful manner, including in a manner that could be deemed to violate applicable laws by touting or hyping an investment, manipulating securities or other investment prices or markets;
    • employ any device, scheme, or artifice to defraud any person in connection with an investment,
    • make any untrue statement of a material fact relating to an investment or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or
    • engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with an investment.
    Each member agrees not to engage in any such activity and is advised that such member will lose access to the community if he/she engages in any such activity.
  • Second, upon the submission of any investment content to SumZero (investment idea write-ups, financial models, forward estimates, etc), each member must click through a series of checkboxes including one stating that the investment content they are sharing in no way incorporates material, non-public information or violates firm policies and procedures or applicable law.
  • Third, at time of content submission, a member must indicate whether or not he/she or accounts/funds managed by his/her firm hold a position (long or short) relating to the investment described. If a position is held, an automatic legal disclosure is displayed at the top of the piece of content indicating that the author and/or the author's firm may hold a position relating to this investment and can trade in-and-out of the position with no obligation to notify the SumZero community.
  • Fourth, SumZero has a designated SumZero Compliance Officer who is authorized to read every piece of investment content posted on SumZero and such Compliance Officer conducts periodic spot-checks of submissions (both randomly and in response to specific inquiries or tips) specifically to seek out potential inclusion of material, non-public information, unsubstantiated rumors, and other potential attempts at market manipulation.
  • Fifth, SumZero specifically conducts word searches on every piece of content for select key word such as ‘rumor.' In addition, SumZero is alerted to any major spike in the company's stock price after a recommendation is submitted on the platform and then proceeds to investigate that recommendation for any potential non-public information. To date, none of these alerts have arisen from the inclusion of material non-public information by a SumZero member.
  • Finally, SumZero enables a designated portfolio manager, compliance officer or other senior professional with a comparable role and responsibility to approve not only the content submission of any of their firm's analysts, portfolio managers and other employees but any of the related email traffic on the site.

Of course, none of these steps prevent the inclusion of material, non-public information or other market manipulation and all members must be vigilant and exercise care in accessing or using information. All members must comply with their own firm's compliance policies and procedures and with applicable law. If a member believes they have identified information that may be material, non-public information (at any time, or if judged with hindsight) or other activity or information that may give rise to market manipulation, such member should contact SumZero immediately.

Does SumZero facilitate any other compliance matters on its platform?

SumZero is sensitive to its members' compliance obligations, but does not provide compliance services or advice. SumZero has made its platform available to compliance officers and other senior professionals with a comparable role and responsibility so that they may monitor the activities of members and fulfill their firms' compliance obligations.

Members are reminded that they have agreed to comply with their firms' policies and procedures, and such policies and procedures may affect the timing of the posting or updating of information, may require pre-approval of any posting, may prohibit certain specific information being disclosed, may require specific additional disclosures (relating to conflicts of interest, not advertising services or otherwise), may prevent acting as a group or otherwise in concert with other investors in a company, may require retention of e-mail and other records etc. SumZero is not responsible for the compliance of individual members or firms with applicable law.

Why are SumZero members required to disclose the name of their firm?

SumZero revolves around the twin principles of transparency and accountability. Fundamentally, SumZero believes that members of the community will be in a better position to assess the quality of information and the compliance efforts of the community if firm names are included. In addition, members can confirm whether a firm is registered with any regulatory agency and whether there are relevant disciplinary matters publicly disclosed about the firm. Compliance officers can be comfortable that including their firm's name will not be constituted as solicitation of investment: all SumZero members upon registration must represent that they are professional investors and that they acknowledge that the investment content on SumZero is solely for research purposes and in no way represents a solicitation.

Is SumZero registered or required to register as an investment adviser (“RIA”)?

SumZero does not provide investment advice but enables like-minded professional buyside investors to share their investment ideas. The definition of an “investment adviser” under U.S. federal law includes a specific exception for “the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation.” SumZero has structured its website with the intention of satisfying this exemption as interpreted by the U.S. Supreme Court in Lowe v. SEC, 472 U.S. 191 (1985). For example, the ideas that are posted are generic ideas, much like one might find in other publications, rather than personalized investment advice and any follow up or input is also posted for general review by members. SumZero reminds members that they are expected to publish disinterested commentary and analysis, not promotional material, and SumZero ensures that posts remain available, which is intended to discourage short-term thinking or “touting” of investment ideas.

SumZero is presently available in the U.S. and is not available in any state or other jurisdiction where it is not permitted, or where SumZero would be required to be licensed or registered in order to offer the services of the platform.

Are SumZero Members required to register as investment advisers as a result of their participation on SumZero?

Each SumZero member is responsible for his or her own analysis of the compliance obligations applicable to such member under U.S. law, state law, non-U.S. law and any other applicable law. Members are not expected to provide personalized investment advice on the SumZero website, and may be entitled to the same publisher exemption that SumZero enjoys. In the wake of recent legislation, firms that manage at least $100 million in assets in the U.S. (or $150 million if exclusively in private funds) are expected to be registered with the Securities and Exchange Commission (SEC) as investment advisers and do not need to become registered as a result of their participation on SumZero. Firms that fall below such thresholds may be subject to regulation in the states in which they do business.

Is SumZero like an “expert network”?

No. SumZero is a community of buyside professionals sharing investment content in a closed-end community of other buyside professionals. No corporate insiders or non-buyside professionals are allowed into the community, which reduces the risk that material non-public information may be disclosed. Moreover, as described above, members agree to comply with their firms' policies and procedures and with applicable law, and members are required to agree specifically that they are not sharing material, nonpublic information.

Terms & Conditions of Membership

SumZero has a detailed Terms of Use, which we require all members to read and approve.

Among other things, anyone accessing SumZero must confirm and represent that they are at least eighteen (18) years of age or older and are a professional investor on the “buy side” of the market with a sophisticated knowledge of investment markets (or a former professional in the industry currently in between positions), an understanding of the risks of investing, an understanding that posts by other members are not solicitation for investment, and an understanding of the limitations of the Site and the User Content (as described in the Terms of Use), or a compliance or legal professional employed by such professional investors. Persons accessing SumZero must acknowledge and agree that they will not submit information that would be a violation of their employer's policies and must agree not to submit information that violates any agreements to which such person may be subject (including, without limitation, any confidentiality agreements), insider trading regulations, SEC regulations, and/or other applicable laws, rules and regulations. Persons who cannot or will not make these representations are not accepted as members of SumZero and persons who violate these agreements may be removed from the community and have their membership terminated as determined by SumZero.