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What Last Month’s SEC Ruling Means for Investors

security-exchange-commissionLess than a month ago, the Securities and Exchange Commission lifted the advertising ban on private investments, which means that hedge funds can now promote their products to the general public. Let’s take a closer look at the SEC’s new ruling.

The New Ruling

According to the new SEC ruling statement that was issued on July 10, there is no longer any ban whatsoever on general solicitation and advertising on private placements. This means that, for hedge fund managers, a wealth of new opportunities has opened up – as well as new challenges. Marketing flexibility has now been expanded for managers of private hedge funds.

Is It Good News?

As of May of this year, broker-dealers are now required to file new reports with the SEC, ultimately meaning that there will be much more compliance with the Commission’s pre-established financial responsibility rules. These rules are designed to increase protections for individual investors who are turning their own money and assets over to broker-dealers registered with the SEC, as well as those investing in alternative assets. But what does the July ruling mean?

According to Senator Carl Levin (D) of Michigan, the ruling is not good news for investors. He feels that it is as though investor protections have gone out the window all over again, saying that the new rule will damage the confidence investors have in U.S. markets, as well as the overall investing public. However, proponents of the ruling argue differently. They believe that July’s ruling is a great supplement to what happened in May,

Accredited Investors and the SEC’s Ruling

Those in favor of the new rule argue, on the other hand, that there are enough limits on who is able to invest in these new private offerings. This is where accredited investors come in – people who are investing in alternative assets and have a net worth of at least $1 million.

According to the regulation, the company or fund raising money must have a basis within reason to conclude that the investor is qualified for accreditation, including reviews of tax returns; as such, proponents of the SEC’s new ruling believe that there are plenty of safeguards available to verify that investors are, in fact, accredited.

The ban on advertising is set to end next month. After the waiting period is officially over, the new rule will mean that hedge funds and companies that use general advertising will be required to notify the SEC at least 15 days before they begin their solicitation process. Even so, even SEC commissioners who are in favor of the new ruling believe that advertising agencies must continue to monitor the more relaxed regulations to see if they are putting investors at risk, even those investing in alternative assets.

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