Democrats seek more supervision on general solicitation

Some lawmakers in the US Senate want GPs marketing to the public to undergo greater regulatory scrutiny.

Private fund managers using the public airwaves to reach investors should have to be more open about their business risks, four leading democratic senators said in a letter to the Securities and Exchange Commission (SEC).

Sens. Elizabeth Warren, Carl Levin, Jack Reed, and Edward Markey asked SEC chairman Mary Jo White to make the amendments in name of investor protection. The rules allowing private fund managers to mass market their funds were written last year by the commission as part of the Jumpstart Our Business Startups (JOBS) Act.

“Mutual funds, which generally are less risky to investors than private securities offerings, are required to submit advertising materials for review by regulators and are required to include specific risk disclosures in their advertisements,” the letter said. “We believe that private securities offerings, especially for private investment funds, should be subject, at minimum, to the same standards as mutual funds.”

The letter also called for harsher punishment for firms that fail to file Form D, which is the form GPs use to notify regulators about their intentions to use new general solicitation freedoms.

“There are few, if any, meaningful consequences for issuers that fail to file a Form D in a timely manner. Form D is an important tool for federal and state securities regulators to be able to track and monitor offerings, and to target surveillance and education efforts appropriately. Without it, a regulator’s first sign of a problematic offering may be a phone call from an investor,” the letter said.

The letter comes a week after the US Commodity Futures Trading Commission (CFTC) issued a list of exemptions that make it easier for GPs to engage in general solicitation. Until last week the SEC rules were at odds with GPs who relied on a commodity pool operator (CPO) registration exemption with the CFTC.