The SEC voted Wednesday to fulfill one of the mandates of the JOBS Act (Jumpstart Our Business Startups) by allowing hedge funds and other issuers of private securities to advertise those offerings to the public.
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The rule stipulates that solicitations may only be made to accredited investors but it stops short of defining exactly the methods issuers must use to ensure investors are indeed accredited.
The issuer must know enough about the investor to make a sound judgment and must also consider how the investor was solicited as well as terms of the investment such as minimum investment amount.
Issuers have been pushing the SEC to accept signed statements from investors that they are accredited. State regulators want the SEC to require proof of accreditation through financial statements and tax and income records.
The commission had planned to issue interim rules last week but industry participants insisted on having the customary 30-day comment period. The change of heart caused some friction among commissioners who had wanted a rule to go into effect on August 22.
Section 501 of SEC Regulation D mandates that accredited investors
have individual net worth or joint net worth with a spouse of at least $1 million at the time of investment.
The net worth figure includes the person’s primary residence.
An alternative way to meet the standard is to have at least two years’ worth of annual income at $200,000 or more or of $300,000 annual income with a spouse.