Yesterday, the SEC got around to doing what Congress told it to do last spring, and lifted a ban on publicizing securities offerings that are not registered with the Commission and are limited to accredited investors.
The order of events went like this: In April 2012, Congress passed the JOBS Act, whose Section 201(a)(1) directed the SEC to remove the prohibition on general solicitation or general advertising for securities offerings relying on Rule 506, provided that sales are limited to accredited investors. The JOBS Act’s passage was followed by some worrying from state securities administrators and others that the SEC’s implementation of this directive would leave investors exposed to hedge funds that offer securities under Rule 506. The SEC proposed a rule implementing Section 201(a)(1) last August, but no final rule until yesterday, almost a year later. In the meantime, some people got antsy – becoming concerned, perhaps, that the SEC might never get around to it. In the end, only Commissioner Luis Aguilar voted against the finished product, and he explained why in a statement released after its passage yesterday afternoon.
To take advantage of this new advertising freedom, issuers will have to take reasonable steps to ensure that their investors really are accredited investors. Two methods that will be available include:
- Reviewing tax forms in addition to written representations that the purchaser will likely continue to earn the necessary income in the current year; and
- Receiving a written confirmation from a registered broker-dealer, investment adviser, licensed attorney, or CPA that such entity or person has taken reasonable steps to verify the purchaser’s accredited status.
I am actually sort of fascinated to see what the upshot will be. It will allow all manner of advertising by hedge funds in all manner of venues. I suspect you will see hedge funds all over Google, newspapers and magazines, and even on the Twitter. Anthony Scaramucci, of SkyBridge Capital, makes no bones about his plans for this liberation. As he said last year, “I am hellbent on creating a global brand and the only way to do that is through advertising.” At a more mundane level, other private fund managers who want to give interviews to, say, Barron’s or the Wall Street Journal will be able to do so now without fear that their comments will be construed as generally soliciting investors for their funds. The rule amendments become effective 60 days after their publication in the Federal Register.