“These offerings are not for everyone and carry a very high degree of risk,” Lori Schock, the SEC’s director of investor education and advocacy, said in a June speech. “For every successful venture, there are more numerous failed ventures.”
Private offerings are the No. 1 fraud or scheme leading to enforcement actions and investigations, according to NASAA. The number of cases involving these types of investments jumped to 410 last year, according to preliminary data from the organization of state securities regulators. That’s a 60 percent increase from 2010.
The lift on the advertising ban will educate a broader group about the type of private offerings available, said Steven Nadel, a partner at the law firm of Seward & Kissel LLP in New York who specializes in hedge funds and other alternative investments.
“There’s plenty of wealthy Americans who may not be super sophisticated when it comes to investing in alternatives,” Nadel said in an interview before the meeting. “It will create more knowledge, more transparency, more understanding of the entire alternative industry.”
The SEC missed the law’s July implementation deadline, and the 30-day public comment period will delay new hedge-fund advertising practices even further.
“The 90-day deadline did not provide a realistic time frame for the drafting of a new rule, the preparation of an accompanying economic analysis, the proper review by the Commission, and an opportunity for public input,” John Nester, an SEC spokesman, said in a statement.