The Securities and Exchange Commission announced Wednesday a proposal that would lift a 30-year ban on public advertising for hedge funds.
The SEC said it will consider loosening restraints on general solicitation and general advertising for hedge funds and other private investment entities-- a task mandated by the JOBS Act which passed in April. The ban was originally put in place to prevent marketing that would attract unsophisticated investors.
Mary Schapiro, SEC Chairwoman, said in a statement: "The proposed rules fulfill Congress' clear directive that issuers be given the ability to communicate freely to attract the capital they need, while obligating them to take steps to ensure that this ability is not used to sell securities to those who are not qualified to participate in such offerings."
The proposal garnered a thumbs up from at least a few crowdfunding start-ups.
“I believe as soon as the rule on general solicitation is removed, there’s going to be an unprecedented amount of crowdfunding activity,” Wil Shroter, co-founder and CEO of start-up crowdfunding platform Fundable, told Inc. “It will unleash the floodgates of thousands of companies actively fundraising right now.”
The proposal would reportedly not effect the part of the law which requires hedge funds to sell to accredited investors with a net worth of over $1 million or individuals that earn more than $200,000 annually.
“At the end of the day, only a healthy, successful industry that protects investors and works with the companies will be a lasting solution for crowdfunding,” said Rory Eakin, founder and COO of CircleUp, which focuses exclusively on consumer products and retail companies with around $1 million in revenue.
The proposal marks the beginning of a 30-day comment period, in which the SEC seeks public feedback.