JOBS Act opens up hedge fund advertising
The recent signing of the JOBS Act has eliminated an 80-year old rule that prohibited the hedge fund industry from advertising to the general public. The Act, which stands for Jumpstart Our Business Startups, also expands private funding of start-up companies and eliminated a provision of Depression-era law that banned the marketing of privately issued securities.
The Securities and Exchange Commission (SEC) is expected to affirm the new provisions within 90 days, though retains the authority to limit the scope of private fund advertising.
The loosening of marketing rules does not alter the definition of “accredited investor” that requires hedge fund investors to have a net worth of $1 million, not including the value of the investor’s primary residence.
“This is an action whose time has come,” said Mitch Ackles, president of the Hedge Fund Association. “Now that many hedge fund managers are required to register with the SEC, the strongest reason for the ban on hedge fund advertising has been removed.”
The shift in rules is particularly significant for smaller hedge funds that lack brand-name recognition or wide contacts, said Steve Nadel, a hedge fund attorney with Steward & Kissel LLP in New York.
“I think the impetus for this act is to modernize a lot of these rules to bring them in line with 21st-century practices,” Nadel says.
The ban against private fund marketing to the general public dates back to a rule in the Securities Act of 1933. Navigating the ban had become increasingly complex with the rise of the Internet and social media, which made hedge fund information widely available to the public. Hedge fund managers have been wary about whether any public statements, or even a company website, left them open to regulatory action.
In 2007, Massachusetts regulators filed a complaint against hedge fund manager Phillip Goldstein of Bulldog Investors. The complaint alleged that three of the company’s hedge funds had violated the ban on general solicitation by maintaining a website about the business. The complaint was upheld by the Massachusetts secretary of state and a fine was levied against Goldstein. In February, Bulldog sought a U.S. Supreme court review of an unfavorable decision by the Supreme Judicial Court of Massachusetts.
Hedge fund marketing ban erased with stroke of Obama’s pen (http://www.finalternatives.com/node/20130). FIN Alternatives, April 9, 2012
Jobs bill opens door to hedgie advertising (http://blogs.wsj.com/deals/2012/03/28/jobs-bill-opens-door-to-hedgie-advertising/). WSJ, March 28, 2012
The JOBS Act frees hedge funds to advertise (http://www.cnbc.com/id/46967489/The_JOBS_Act_Frees_Hedge_Funds_to_Advertise). CNBC, April 5, 2012