UNITED STATES – The US Securities & Exchange Commission (SEC) voted on Wednesday to lift the ban on advertising by companies issuing private securities deals.
The move is expected to enable non-US fund managers to market themselves directly to US investors.
The law was changed in line with the JOBS Act, passed by Congress in 2012. The law called for measures to relax securities regulations to help smaller companies and entrepreneurs to raise funds.
In order to tighten consumer protection, the SEC at the same time adopted the so-called 'bad actor' rule blocking convicted felons from promoting private investment deals.
It also passed rules mandating that firms make additional disclosures to the SEC about funds that they intend to market publicly. The disclosure process may well prove to be an impediment to the smaller firms that the law is trying to support, because they do not have experience with regulatory agency filing processes.
Companies will have to file with the SEC 15 days in advance of making any public representations. They will be allowed to advertise on multiple channels, including television and the internet, and they will be permitted to speak to the press during fundraising periods. If they fail to register in advance, they will be restricted from advertising for a year.
Restrictions remain regarding whom firms can sell to. Companies that choose to advertise will only be permitted to sell to 'accredited investors', individual investors with either income greater than $200,000 (or $300,000 for a married couple) or a net worth of $1m, or institutional investors that meet certain asset-level requirements.
The SEC said that companies should "take reasonable steps", by reviewing tax filings or getting verification from SEC-registered broker-dealers or other financial representatives.
Advertisements will not start appearing any time soon. The new rules will not take effect until 60 days after it is published in the Federal Register; it can take up to 10 days for publication. In addition, firms that want to advertise will have to file a form D 15 days in advance with the SEC.
