The Securities and Exchange Commission lifted an 80-year ban on general solicitation, or advertising, for certain securities offered by hedge funds and other firms seeking private capital.
As part of the new rule, which was adopted by the SEC in a 4-1 vote July 10, startups and small businesses will also be permitted to use advertising to help attract capital through private offerings. Hedge funds and buyout firms that advertise securities products must still take steps to verify that investors are accredited.
Removal of the moratorium on general solicitation was included in the Jumpstart Our Business Startups (JOBS) Act, a controversial bill but one that passed in the spring of 2012 with bipartisan support.
“As we fulfill our mission to facilitate capital formation and maintain fair and efficient markets, the commission must always focus on strong investor protections,” said Mary Jo White, chairwoman of the SEC, in a statement. “We want this new market and the private markets in general to thrive in a safe and efficient manner, and these rules we adopt and propose are designed to facilitate that objective.”
Existing regulations define an accredited investor as an individual or couple with a net worth that exceeds $1 million at the time of the purchase, excluding the value of a primary residence; an individual with annual income that exceeded $200,000 in each of the two most recent years; or a couple with annual income exceeding $300,000 for the two most recent years, provided they have a reasonable expectation of earning the same income in the current year.
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