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
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
to read the entire article in the New York Times.