Finect: More Investor Protections Needed As Private Placement Ad Ban is Lifted

Hedge funds will make greater use of social media to find qualified investors, the online financial network notes

NEW YORK, July 10, 2013 /PRNewswire-USNewswire/ -- The SEC's move today to lift a longtime ban on the advertising of private placements by hedge funds needs to be followed quickly with strong protections for investors, Finect President Jennifer Openshaw says.

"Small companies benefit by being able to raise money more easily under the new rules," Openshaw said, "but history has shown that consumers can be misled and exploited if steps aren't taken to guard their interests.

"It's all the more important to be vigilant against bad actors. More information will now be accessible to investors through the use of social media, and the ability of bad actors to pursue unaccredited, unsophisticated investors will grow," she added.

Last year the U.S. Congress approved the Jumpstart Our Business Startups (JOBS) Act and directed the SEC to carry out rulemaking that would implement some of its goals. It includes reversing advertising prohibitions that became law under the Securities Act of 1933.

Openshaw said the SEC needs to enact investor protections that some consumer groups have sought. Regulators should review the accredited investor definition, with an eye toward a minimum income of perhaps $400,000 or a net worth of $2.5 million.

"An investor with a net worth of $1 million isn't necessarily a sophisticated investor. Windfall wealth, including the sale of a long-held home, can provide consumers with opportunities for making uninformed financial decisions," Openshaw says.

Disclosures also should be standardized, she adds.

The good news is the SEC's action will allow hedge funds and investors to find each other more easily, especially as funds employ social media to broaden their reach, Openshaw adds.

"It's an open world with access to information we haven't seen before," she says. "The Internet and social media are changing it."

Finect, the financial industry's online network, will be a part of that evolution. None of the key social media channels – LinkedIn, Twitter and Facebook – were created specifically for the financial industry's compliance needs, Openshaw says. Finect provides a unified way for advisors and investors to use social media in a compliant fashion.

"So managers such as hedge funds may want to use Finect as a one-stop compliant social platform that allows them to share information and even reach accredited investors," she says.

Additional information is located here.

SOURCE Finect