Hedge Fund Advertising Ban Ends

Sep 23 2013 | 11:47am ET

For the first time in 80 years, hedge funds are able to advertise their wares to the general public.

The Great Depression-era ban on general solicitation for private securities offerings ended today, more than two months after the Securities and Exchange Commission voted to allow hedge funds to advertise and more than a year after it was mandated to do so by the JOBS Act.

The new rule does not change the requirement for hedge fund investors to be accredited (having more than $1 million in net worth or earning more than $200,000 per year), but it does mean that firms no longer have to ensure that their marketing materials go only to such investors. While flashy television advertisements are not outside the realm of possibility, it is expected that the rule change will free hedge fund managers to speak more openly about their products in the media.

The new rule also permits "emerging growth" companies to crowd-source financing of up to $1 million per year without registering their securities. The JOBS Act also created the provision that allowed Twitter earlier this month to confidentially file for an initial public offering.

The SEC rule allowing hedge fund advertising did not include any investor protections—much to the consternation of investor advocacy groups and some Democrats. But the SEC did approve a separate rule—also coming into force today—to bar felons and other "bad actors" from participating in the newly-allowed offerings.

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