New JOBS Act opens the door to advertising by hedge funds, but an industry organization cautioned members that the advertisements must still comply with state laws and other regulations.
The Jumpstart Our Business Startups Act (JOBS) allows hedge funds to advertise their offerings to the public “whether online, in person, or through any other means.” The Act, which was signed into law last week, gives the Securities and Exchange Commission 90 days to eliminate the ban on advertising for an offering by a private issuer.
But hedge funds can only sell to qualified institutional investors (companies that manage a minimum $100 million in assets) or accredited investors such as individuals with a minimum net worth of $1 million.
Lifting of the advertising ban will pose different challenges to hedge funds depending on their size, Geffner said. “[With] larger firms, depending on the controls, there is a greater likelihood for inconsistencies to appear between advertisements, marketing pieces and questionnaires. Smaller firms often don’t realize the importance of information they are providing and [the] ramifications liability.”
The Hedge Fund Association said the lifting of the advertising ban would benefit registered smaller hedge funds whose size had made it difficult to reach investors “despite studies that show smaller hedge funds outperform large ones.”
Barbara Roper, director of investor protection at Consumer Federation of America, said the JOBS Act would increase the likelihood of fraud and make life more difficult for state regulators who are prosecuting “thousands of fraud cases each year.”
Read More: Reuters