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How Hedge Funds Are Slowing JOBS Act Rules for Small Businesses

Business Week – When President Barack Obama signed the Jumpstart Our Business Startups Act into law one year ago today, his goal was to make it easier for small businesses and entrepreneurs to raise capital. Supporters of the JOBS Act are still waiting for the Securities and Exchange Commission to write rules needed to implement the law.

One reason for the holdup is that the SEC has a lot on its plate. The regulator is still writing rules required by the Dodd-Frank financial reform law and is in the middle of a leadership transition. If you squint hard enough, you can make out another reason: hedge funds.

Here’s how: One way the JOBS Act sought to ease the path for small businesses raising capital was by lifting the ban on so-called general solicitation, which severely limits how private companies can seek investment. To get investments flowing, the law was supposed to allow companies to broadcast widely their intentions to raise money.

The SEC asked for public comment on a proposal to lift the general solicitation ban in August. That raised the hackles of investor advocates, who worried that ending the ban on general solicitation without adding new protections would lead investors to lose all good judgment to the siren call of hedge fund advertising. (Even if the advertising ban is lifted, investing in hedge funds will be limited to accredited investors—people wealthy enough that the government assumes they understand the risk involved.)

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