Prohibition Era Ends, Hedge Fund Advertising To Resume
In a move likely to redefine the financial industry, the SEC voted this week to rescind an 80-year-old ruling prohibiting hedge funds from public advertising. The ruling comes as the result of the Jumpstart Our Business Startups Act (JOBS Act), which is intended to make it easier for small businesses to raise capital.
The Securities Act of 1933 was originally implemented following the stock market crash in 1929 as a means to regulate and control securities sold, requiring that funds register with the SEC unless they met an exemption.
Under the new rule, hedge funds, private equity funds and other investment firms will have the opportunity to publicly solicit capital via a variety of commercial advertising outlets, including websites, print ads, and social media. Hedge funds have historically been quiet on such mediums, largely due to fear of noncompliance with regulations.
Many, however, do not expect advertising fever to catch on too quickly. According to Forbes, “it’s more likely hedge funds will start slow. Some may start thinking about a real marketing strategy for the first time. Others might find the new rule as an opportunity to provide some more detail on their website, or speak in public about their funds.”
Hedge funds and other firms will be required to notify the SEC 15 days prior to a public offering
Companies who fail to notify the SEC in advance of advertising will be barred from making public offerings for one year
Investments in the offerings remain restricted; Only “accredited investors” with a net worth of at least $1 million may invest
The ban will be officially lifted 60 days after the ruling is published in the Federal Register
The SEC also voted to propose a “package of investor protections” in hopes of better policing the private offerings that will ensue.
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