SEC Votes To Lift Hedge Fund Advertising Ban

Jul 10 2013 | 1:57pm ET

Long before there were hedge funds, there was a rule that barred them—as private, unregistered investments—from advertising.

The Great Depression-era regulation banning public solicitation was overturned today by the Securities and Exchange Commission, which—more than a year after the deadline set by the law—approved a rule mandated by last year's JOBS Act. Four of the commission's members, including Chairman Mary Jo White, voted in favor of the new rule, with one dissent.

"Given the explicit language of the JOBS Act as well as the statutory deadline which passed last July, the commission should act without further delay," White said before the vote. "This does not mean, however, that the commission should not take steps to pursue additional investor safeguards if and where such measures become needed."

That lack of those safeguards has earned the opprobrium of investor advocacy groups and Commissioner Luis Aguilar, who voted against the rule.

"Without common-sense protections, general solicitation will prove a great boon to the fraudster," he said. "Experience tells us that this will lead to economic disaster for many investors."

The rule does require hedge funds to confirm that investors are accredited, either by reviewing their tax forms or by getting confirmation from a broker, investment adviser, attorney or accountant.

The SEC voted separately—with both Republican commissioners voting no—to monitor how the advertising is used and whether it contributes to more fraud, and to bar felons and other "bad actors" from participating in the offerings.

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