The Securities and Exchange Commission (SEC) of US plans to vote next week to adopt rules that would lift a long-time ban prohibiting hedge funds from advertising for private placements to sophisticated investors.
The rule would lift the ban on ‘general solicitation,’ or using advertising to market investments in hedge funds, startups and other firms.
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The lifting of the restriction is mandated by the 2012 JOBS Act, a law that relaxes certain securities regulations to help small businesses raise capital and go public.
The SEC is expected to propose in the rules package several new provisions aimed at addressing concerns by anxious investor advocates who worry repealing the advertising ban may invite more fraud. These include restrictions on sales literature and new filing requirements so that the SEC can better track the market for private offerings.
The agency is also expected consider whether to bar convicted felons and other ‘bad actors’ from participating in the private offerings.
Lightly regulated investment funds and other businesses raised US$895 billion in 2011 selling the type of unregistered securities affected by the ad ban, according to the SEC.
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By GlobalData
