4986288875_12a50c06c7_zWell, the SEC approved something in the JOBS Act that could affect small businesses. No, still no news on the crowdfunding front.  In a 4-1 vote, they approved hedge-funds and other companies can advertise private offerings. This means that private companies and hedge funds can appeal to the public through TV, print, radio, web, etc. advertisements for unlimited amounts of funding.

The Worrisome

The rule does give a little more leeway for corrupt hedge funds to solicit your grandmother and swindle her out of her life savings, which would be terrible. However, it’s important to note that one must be an accredited investor – someone with a net worth of at least 1 million, excluding their primary residence – in order to participate in a private offering, which limits the pool of potential investors a bit.

Four things here regarding advertising and hedge funds:

  1. As Bloomberg noted, the accredited investors caveat will probably keep most hedge funds from publicly advertising, since they’re pretty much in the same boat as now; rather, it  will give them more freedom to divulge information online and at conferences.
  2. What serious accredited investor would give, for instance, a hedge fund’s TV advertisement a second thought? (Their first thought would be along the lines of “This can’t be real,” or “You’ve got to be kidding me.”)
  3. Anyone who has a felony for or has been found guilty of securities-law violations is blocked from publicly advertising.
  4. Accredited investors must be vetted either by a review of federal-tax documents to check their income, or verification of the investor’s net worth by a licensed attorney, registered broker, certified public accountant, or investment adviser.

The Good

This decision allows startups (and even established companies) to be vocal about the fact that they need funding. It’s not a on the level of crowdfunding (yet), but it’s in the same general direction.

However, on a 3-2 vote, the SEC also enacted the following rule: Companies looking to raise money through a private offer must fill out a Form D (which includes what forms of advertising were used) within 15 days of the offer closing. Additionally, they have 30 day to update the information in the form once the offer closes. Should a company choose not to comply with any of the rules, they’ll be banned from making a private offer for a year.


There are still 60 days before the rule goes into effect, giving plenty of time for additional details to emerge. But I’m hopeful. What do you think the outcome of the decision will be?

[CC photo credit to Howard Lake]