25 June 2019

SEC Votes To Allow Advertising For Private Investments

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On Wednesday, the Securities and Exchange Commission voted to lift an 80-year-old ban on advertising by hedge funds, buyout firms and start-up companies. The vote will change the way these businesses are able to raise capital in the private markletplace.

The vote comes in response to the Jumpstart Our Business Startups Act rule enacted by Congress last year. The law is intended to help small businesses and create jobs in response to the financial crisis.

By allowing small businesses and start-ups to raise capital through advertising, the hope is to speed up the process of creating new jobs. Hedge funds and buyout firms, whose investment vehicles fall under regulations for private offerings, will also be able to promote their products to the general public, but restrictions will remain allowing only accredited investors to buy in.

The vote does not come without dissent. Opponents feel that it will provide more opportunities for fraud and that there are not enough safeguards in place for investors. But most hedge fund and private equity lawyers said that they did not expect a jump in ads. Because only about 7 percent — or 7.6 million households — are accredited investors, mass advertising through television or magazines makes little economic sense for most funds. 

The ban on advertising will officially end some time later this year, after a 60-day waiting period. The rule will require hedge funds and companies that use general advertising to notify the S.E.C. 15 days before the solicitation begins.

Click here to read the entire article in the New York Times.
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