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The Deal: SEC Ends Ban on Private Fund Advertising

The most contentious action of the day was the vote to propose an amendment to Regulation D, Form D and Rule 156 to allow the SEC to gather more information in Rule 506 offerings. The amendment would expand the information required to complete a Form D, require the filing of a Form D at least 15 days prior to a securities issue and an amended Form D 30 days after an issue.

Form D filings are required for private placement offerings under Rule 506.

Commissioners Troy Paredes and Daniel Gallagher voted against the amendment, with the majority voting in favor of passage. Paredes said the rule could make it harder for small companies to raise capital.

"The totality of what the commission is proposing would rob the market of its vitality," Gallagher said. He noted that companies used private placements under Regulation D to raise four times the amount of capital that was raised by initial public offerings in 2012.

"This thwarts the purpose of the JOBS Act," Gallagher said. He also said the amendment could stifle capital raising at a time when job creation is critical.

David Pankey, a partner with the law firm McGuire Woods in Washington, said the changes to the proposed rule for ending the ban on general solicitation included a specific safe harbor with a list of steps an issuer can use to verify the accredited status of investors. That was a positive change supported by a large number of market players who submitted comment on the rule when it proposed, Pankey said.

Pankey also said the newly proposed investor protections, which were aimed at increasing the SEC's ability to track Rule 506 offerings in a world where general solicitation will be allowed, will now face a full court press from investor and industry advocates and may not survive intact.

Investor advocates reproached the commissioners for their action on general solicitation.

"With this vote, the Commission has thrown open the doors to mass marketing of hedge funds and other so-called private offerings, knowing full well that it lacks to tools to provide effective market oversight and that the current rules are inadequate to ensure that only those with the financial sophistication to understand the risks and the wealth to withstand potential losses invest in such offerings," Barbara Roper, director of investor protection at the Consumer Federation of America, said in a statement.
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