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SEC Opens the Door to Hedge Fund Advertising, Repeals Investor Protections Dating Back to the Great Depression

Despite the objections of investor advocates, the Securities and Exchange Commission (SEC) finalized a rule that will lift a decades-old ban on advertising by hedge funds. The original prohibition on such advertising dated back to Great Depression and protected people from investment scams.

Last year, Congress passed the Jumpstart Our Business Startups Act, cynically named the “JOBS Act,” requiring the SEC to lift the prohibition on advertising of unregistered securities.  The name of the so-called JOBS Act is highly misleading because it does not create jobs, but deregulates Wall Street.

While the SEC was required to implement the law, the AFL-CIO and investor advocates pushed the SEC to include investor protections.  The SEC, however, finalized the rule without incorporating additional protections and instead proposed a separate rule that could, if adopted, address some of the problems.  However, such a new rule will likely face opposition from hedge funds and others.

Standing on the side of protecting investors from Wall Street scams, SEC Commissioner Luis Aguilar was the only one of the five commissioners to vote against the rule. He said:

“The record is clear that general solicitation will make fraud easier by allowing fraudsters to cast a wider net for victims. The potential risks associated with general solicitation are well understood…I am disappointed and saddened by the reckless adoption of the [rule] without appropriate safeguards. I know that many on the staff share my concerns. I want to encourage you to fight on behalf of investors. They will need you now more than ever.”

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