Now that the Securities and Exchange Commission has been ordered by the US Congress to remove the ban on general solicitation, companies will be able to more easily offer their private offerings to the masses for the first time since the 1930’s. The purpose of this is to assist small businesses and start-ups to raise capital.
The lifting of the ban is part of the wider mandate established under the Jumpstart Our Business Startups Act. Firms will be able to advertise to anyone. However, only “accredited investors” in possession of a certain amount of income ($200,000 or $300,000 if married) or with net worth greater than $1 million (primary residence not included) can buy the private offerings.
While the private equity industry says that this change will liberate firms from limitations that restrict entrepreneurship, advocates are worried that investors will be even more at risk of falling victim to high-pressure sales tactics and fraud. They are calling for the SEC to mandate related protections. Even the North American Securities Administrators Association, which represents state securities regulators, reportedly expects private placement fraud cases to go up once the lifting of the ban actually happens.