HFA Wants Clear Investor Accreditation Rules

Sep 13 2012 | 7:46am ET

The Hedge Fund Association wants the Securities and Exchange Commission to spell out its rules for investor verification for funds planning to advertise once an 80-year-old ban on the practice is lifted.

The recently passed Jump Start Our Business Start-ups Act proposed lifting the ban on hedge fund advertising while continuing to restrict investment to accredited investors.

The HFA welcomes the move to lift the ban but worries that regulations that are either too vague—the SEC has said managers must take ‘reasonable steps’ to ensure investors qualify— or too detailed could derail the JOBS Act’s original goal of increasing employment by making it simpler for private companies to raise money from investors.

“At the same time as lack of legal clarity can cripple businesses with uncertainty, clear laws which demand too much of investors and issuers can dampen the interest in allocating capital to private companies while greatly adding to fund managers’ operating expenses,” said HFA President Mitch Ackles. “In drafting final regulations, we ask the SEC to keep this in mind and to remember the original intent behind JOBS Act—to invigorate the economy.”
In a letter to the SEC, the HFA suggested accrediting would “ideally” involve an investor signing a subscription agreement affirming that he or she is an accredited investor and providing “a detailed description of the reason why the investor made that claim.”

The group also asked the SEC to coordinate with another regulatory body, the Commodity Futures Trading Commission, in drafting its investor accreditation rules.

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