Thursday, October 25, 2012

SEC Under Pressure Regarding JOBS Act Provisions

By Tim Husson, PhD

According to InvestmentNews, the SEC is being asked to abandon their new rules allowing hedge funds and other private placements to actively advertise to investors.  We've discussed these issues before, as we think this could mark a significant change in how the public views this highly opaque and unregulated market.  From the article:
Critics assert that the SEC proposed rule on private-fund advertising was too vague and would hurt investors by allowing them to be lured in by slick sales pitches for opaque and volatile investments. 
“Lifting the advertising ban on these highly risky, illiquid offerings without requiring appropriate safeguards will create chaos in the market and expose investors to an even greater risk of fraud and abuse,” Heath Abshure, Arkansas' securities commissioner and president of the North American Securities Administrators Association Inc., said during a conference call with the media.
While we agree with the concerns expressed by these groups, it is not clear that the SEC has any choice in the matter.  Their proposed rule change is simply an implementation of provisions of the JOBS Act signed into law earlier this year, and Congress has already accused the SEC of dragging its feet on this issue. So it is not clear how much room the SEC has to investigate potential erosion of investor protections, even if they are significant.

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