STOCK MARKET WATCH -- Monday, 15 July 2013

[Demeter]

6. What to look out for as SEC lifts 80-year-old ban on advertising

http://www.marketwatch.com/story/when-hedge-funds-call-don-draper-run-2013-07-12

...the Securities and Exchange Commission has lifted an 80-year-old ban on advertising by hedge funds, buyout firms and startup companies seeking capital. The rule was included last year in the Jumpstart Our Business Startups (JOBS) Act, which was seeking to give small businesses — and job creation — a boost amid economic stagnation and the lingering fallout of the financial crisis of 2008.

By the time the leaves turn this fall, investors can expect to see the first general ads for private offerings — a category that hedge funds and buyout firms, technically, fall into — with firms first sitting out a 60-day waiting period and then being required to give the SEC at least 15 days’ notice before beginning their solicitations.

The more advertising investors see, the more worrisome the SEC decision, because the regulatory body largely failed to put in safeguards, content instead to let the situation play out and then use problem cases and trouble signs to refine the rules going forward.

Proponents of the new rules like the simplistic approach here, noting that by limiting the general advertising to “accredited investors” — people with annual income of more than $200,000 in each of the last two years, or with net income excluding their primary residence of $1 million — unsolicited sales pitches for private placements will only wind up in the hands of sophisticated investors....That is wishful thinking; you don’t have to read too many Bernie Madoff stories to know that the largest fraud in Wall Street history — a Ponzi scheme based on imaginary investments held in hedge-fund investments — hit a lot of people who fell below the accredited-investor line, and proved that “accredited” doesn’t necessarily mean “sophisticated.”

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