Investment Fraud Likely to Increase as SEC Lifts 80-Year Hedge Fund Advertising Ban
The floodgates are about to open for hedge funds and other firms to advertise to the general public.
The Securities and Exchange Commission (SEC) recently lifted an 80-year-old ban that prevented hedge funds and other private investments from advertising directly to the public. Now, hedge funds and private equity firms can solicit investors through s through television, the internet and social media channels to reach potential investors.
The 4 to 1 SEC vote now allows firms to expand their clientele by way of advertisements, but there are some restrictions. Firms who advertise must have plans in place to ensure that the people who respond to their advertisements are accredited investors. Who are accredited investors? According to the SEC, these investors:
- Make $200,000 per year, or
- Have a net worth of $1 million or higher (excluding their home)
But, how likely is it that these new sales pitches will be heard only by so-called "accredited investors?" Many of the Ponzi schemes and other investment fraud cases we see in our law firm started out as private securities transactions that found their way too many individuals who did not fall within the "accredited investor" criteria. It's wishful thinking to believe that unsuspecting and unsophisticated individuals won't get sucked in to these risky investments that they don't understand and should never own.
The one person who voted against the lifting of this ban, Luis Aguilar, said that the decision was reckless.
"I want to encourage you to fight on behalf of investors. They will need you now more than ever."
This new rule will begin to take effect in about 60 days.