The SEC is one step closer to allowing hedge funds and other private investment firms to advertise and solicit for business, voting 4-1 on Wednesday to seek public input on the proposal for 30 days before deciding whether to finalize the rule.
The proposed rule requires managers to take “reasonable steps to verify that the purchasers of the securities are accredited investors” and establish methods for verifying an investor's accredited status — having a net worth above $1 million or annual income of $200,000 for the two previous years — but falls short of prescribing specific steps on solicitations and advertising, noted Steven B. Nadel, a partner with the law firm Seward & Kissel, which represents hedge fund and other private investment managers. “Will there be limits on ad content? Will there be any guidance on what manner of advertising is OK — TV, radio, stadium naming, websites, cold calls?”
SEC Chairwoman Mary L. Schapiro took heat from some commissioners for not taking a more expedited route to final rules, which were mandated by the Jumpstart our Business Startups, or JOBS, Act, with a June 2012 deadline.
Ms. Schapiro insisted that the formal process for hearing public input “is a path that we never should have strayed from, and we needed a course correction.” She noted “there are very real concerns about the potential impact of lifting the ban” and said it will be “incredibly important” for SEC officials to monitor the impact of the change.
Commissioner Luis Aguilar was the only commissioner opposed to issuing the proposal Wednesday.