By Sarah N. Lynch
WASHINGTON (Reuters) - The head of the U.S. Securities and Exchange Commission vowed to plough ahead with controversial new rules requiring hedge funds to disclose details about private stock deals before advertising them, a move that is likely to irk the industry.
"For investors' sake and the sake of the new marketplace, we need to move expeditiously toward adoption," SEC Chair Mary Jo White told the Managed Funds Association (MFA) in a speech in New York on Friday.
The plan, which would give the SEC more information about the private securities market, aims to offset concerns about lifting an 80-year-old ban on general advertising to allow hedge funds and others to use the Internet, radio or television to reach investors.
Investor groups had urged the SEC to include more customer protections before lifting the ban, saying they feared scam artists could take advantage of the new advertising to prey on people. Private funds and start-ups, meanwhile, urged the SEC to hurry and lift the ban, saying it was long overdue.
White ultimately decided to first adopt the advertising rules, which went into effect in September, and separately propose earlier and more extensive disclosures for private securities offerings that addressed the investor concerns.
Current rules allow hedge funds and others to seek to raise an unlimited amount of money from private deals. Only limited information is required by regulators and forms can be submitted 15 days after the first sale of securities.
Under the proposal, hedge funds would have to file forms 15 days before they start advertising and provide more information about their firm, the offering and how the proceeds are used.
Since taking over the helm of the agency in April, White has showed herself to be independent, taking actions that have earned her applause and criticism from both sides of the aisle.
Her decision to lift the advertising ban has earned her praise from Republicans, but she has upset many of those same people with the private offer disclosure rules and another plan that would force companies to disclose how their chief executive's pay compares with the rest of the work force.
So far, White said the SEC has received more than 450 comment letters about the disclosure rules. Many of the letters, including from the MFA, which invited White to speak to its members on Friday, are highly critical of the proposal.
Filing forms in advance "imposes an unnecessary burden" and some information required is "not appropriate for public disclosure," MFA general counsel Stuart Kaswell wrote on September 23.
White said she understood the need to weigh all of the comments carefully, but quick action was warranted.
"This is an important proposal, and there are a lot of different views about it, so it is important to have an opportunity to consider these views," she said.
She did not give a timeline for adoption, which will require a majority vote of the SEC's five commissioners.
Although the advertising rule change eases restrictions on hedge funds, most of the SEC's other regulatory initiatives are greatly increasing federal oversight - like the 2010 Dodd-Frank Wall Street reforms, which are forcing hedge fund advisers to register with regulators and open their books to SEC examiners for the first time.
White said she would not give in to pressure by some to allow private funds to avoid inspections by SEC examiners.
Last month, New Jersey Congressman Scott Garrett and House Financial Services Committee Chairman Jeb Hensarling wrote a letter urging the SEC to stop spending so much time conducting compliance exams of hedge fund and private equity fund advisers.
The lawmakers argued that investors in these funds are more sophisticated, and that the SEC's time would be better spent examining advisers who offer mom and pop investors advice.
Without naming the lawmakers in her speech, White said the SEC had a mission to protect investors.
"All investors in the U.S. markets deserve to know that there is a regulator on the block," she said.
(Reporting by Sarah N. Lynch; Editing by Krista Hughes)
- Private Equity & Hedge Funds
- Politics & Government
- hedge funds
- Mary Jo White