SEC chairwoman Mary Jo White is pushing to adopt a rule allowing hedge funds to advertise in a move consumer advocates say could fail to protect unsophisticated investors, according to two people familiar with the matter.
Ms. White, who became SEC chairwoman on April 10, has suggested the commission pass the existing plan without major changes and add additional protections later, said the people, who declined to be identified because the deliberations are private. The approach would placate congressional Republicans who have complained the Securities and Exchange Commission has slow-walked the rule, which was required to be completed by July 2012.
Approving the regulation would allow Ms. White to make good on a promise she made in her Senate confirmation hearing to prioritize rules mandated by the Jumpstart Our Business Startups Act, which was designed to boost capital-raising and job creation. At the same time, it could anger advocates for small investors and at least one Democratic commissioner.
“It would be a very bad sign — a cause for grave concern about the substance of the issue and process of how investor protection concerns are addressed,” Barbara Roper, director of investor protection at the Consumer Federation of America, said in a phone interview. Ms. Roper said she discussed the rule with Ms. White and other SEC officials on April 23.
John Nester, an SEC spokesman, declined to comment on Ms. White's plans.
The rule would lift the ban on “general solicitation,” or using advertising to market investments in hedge funds, startups and other firms. The prohibition was designed to protect small investors from taking inappropriate risks. Only more sophisticated investors, or people with annual income greater than $200,000 and net worth greater than $1 million excluding their home value, can make such investments.
