SEC Hedge Fund Advertising Rules

SEC Hedge Fund Advertising

SEC Will Allow Hedge Fund Advertising, But Not Happily

The Securities and Exchange Commission recently voted 4-1 in favor of relaxing restrictions on hedge fund advertising.  Although the vote suggests support of loosening the rules, the SEC doesn't appear too happy with the final result.  One of the SEC's commissioners, Elisse Walter, recently told a conference audience that she was concerned about the possibility for increased fraud with new hedge fund advertising.  Still, it's unclear whether that concern will ultimately translate to a vote against the new rules.

The JOBS Act included the provision and the SEC has taken its time evaluating the consequences of approving it.   The rule is currently in the public commenting phase until the SEC has a final ruling--the new rules would likely then take effect next year.
On Thursday, one of the commissioners who voted in favor of proposing the rule, Elisse Walter, warned that it could lead to an increase in fraud. 
"If allowing general solicitation results in increased incidence of fraud or sale of securities to investors that don't have the sophistication to understand the risks and merits of a particular investment we will have failed not only investors but small businesses as well," she told a small-business capital-formation conference. 
"I feel strongly that we should take those potential consequences seriously," she continued. "We must be vigilant about the potential consequences, particularly the unintended consequences of a change like this and consider ways to mitigate potential harms while preserving the rule's intended effects." 
Walter did not say she would vote against the rule when it comes up for final approval—it is currently subject to a comment period. But she echoed concerns earlier raised by the commission's two other Democrats, Chairman Mary Schapiro and Luis Aguilar. 
Schapiro delayed for months proposing the rule and then warned that "there are very real concerns about the potential impact of lifting the ban," but acknowledged the "narrow mandate Congress placed upon us." Aguilar voted against proposing the rule, citing the lack of restrictions. Source

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