Advising Individuals on Hedge Fund Investments

An Overview of Their Promotion, Regulation, and Performance

William M. VanDenburgh, PhD

Hedge funds and other private offerings have historically not been permitted to use general advertising to solicit individual investors. On July 10, 2013, this all changed when the SEC released final rules allowing “an issuer to engage in general solicitation or general advertising” of private offerings under SEC Rule 506 (http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539707782). In the Jumpstart Our Business Startups (JOBS) Act of 2012, Congress had mandated the SEC to remove—within 90 days, although the SEC missed this deadline due to criticism of its proposed rules and the appointment of a new SEC chair—the prohibition against unregistered companies' direct solicitation of funds through mass advertising and other means. In light of these new rules, CPAs represent a critical source of guidance for high-net-worth investors seeking investment products with better return fundamentals.