Thanks to Obama’s Jumpstart Our Business Startups Act (Jobs Act), the ban on hedge fund advertising has been lifted starting today.
The JOBS Act became law in March 2012 and made the initial recommendation to allow “general solicitation” for private issuers. The SEC was given time to evaluate how they could implement it. In a 4 to 1 vote the SEC approved a motion to allow hedge funds and other firms who created private offerings to advertise to whoever they want, but they will only be able to accept investments from accredited investors.
“Based on my conversations with various hedge fund partners, the end of the 80-year-old ban on hedge-fund advertising is causing many hedge funds to launch ad campaigns as early as this month to attract retirement investors,” Adam Bergman, an in-house tax attorney with the IRA Financial Group, said. “Potential retirement investors looking to use retirement funds to make hedge fund investments need to understand that just as some hedge-fund strategies may enhance returns, they may also magnify losses, and some strategies are more volatile than others.”
Some of the details of the new rule are:
1. Hedge Funds aren’t forced to generally solicit. If you choose not to, there will be no changes for you.
2. If you want to generally solicit (advertise) you will need to file a “Form D” with the SEC at least 15 days before you start advertising.
3. The SEC is very interested in how advertising is being used by private issuers, and have made changes to Form D filings. Funds that make public solicitations will also need to file an amended Form D within 30 days of the offering’s termination.
Failure to follow these rules will likely result in a ban from creating additional securities for a year or more.
In an effort to protect investors with limited means, hedge funds are closed by federal securities law to all but “accredited” investors—which includes individuals with an annual income that exceeds $200,000 for the past two years or a net worth exceeding $1 million excluding their primary residence. In addition, the funds generally require minimum investments of at least $250,000 and limit how frequently investors may withdraw cash.
