New York (HedgeCo.Net) – The Securities and Exchange Commission this week adopted a measure to allow companies, including hedge funds and other private entities, as well as public companies, to raise money through general solicitation of, and advertising to, the public.
“This is a very significant change that allows greater opportunities and creates new avenues for companies to reach potential investors and raise capital.” Howard Berkenblit, partner and leader of Sullivan & Worcester’s Securities & Corporate Governance practice, said of the new SEC ruling. Berkenblit says the benefits this could bring to companies and investors outweigh concerns about risks of fraud to investors, in part because only accredited investors are allowed to participate in the purchase of these securities. The SEC also added new rules requiring additional verification that investors are “accredited investors” to prove they meet the financial requirements to participate in such an offering.
“As before, investors need to do their homework and these new rules put a heightened importance on investors being sure that the issuer is a legitimate company since advertisements alone may not be enough to distinguish viable investment opportunities from fraudulent ones; they need to do due diligence on both the company in which they are considering investing in and any platform that may be hosting the offering. In addition, the SEC should look at ways it can help prospective investors detect fraud- such as using an online verification tool or hotline to confirm that an offering is legitimate and allowing investors to report potential fraud.”
In connection with the new rules, the SEC proposed requiring issuers to provide the SEC with additional information about these securities offerings, including copies of their sales materials. The SEC also disqualified felons and other ‘bad actors’ from participating in certain private securities offerings.