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One of the hedge fund world’s favourite parts of the JOBS Act is that one of its measures is to kill the ban on allowing hedge funds to advertise to mum and pop — the solicitation ban.That means they’re probably furious right now.
Documents reviewed by the Wall Street Journal indicated that SEC Chair Mary Schapiro purposely delayed the approval of the abolition of the solicitation ban because she was concerned about her legacy.
The ban was supposed to be lifted in August, with the SEC issuing an “interim final rule” on the issue.
But then Schapiro’s office got an e-mail from a senior official at the Consumer Federation of America urging her to delay issuing the final rule because the group had “strong objections” to it and that a consultation period was necessary. The official added that the group was “prepared to be quite aggressive in voicing their concerns.”
The email was forwarded to Ms. Schapiro, who promptly sent it on to her inner circle of advisers and Democratic Commissioner Elisse Walter, saying “they are making me very worried.” Ms. Walter is scheduled to take over for Ms. Schapiro as SEC chief this month.
Within an hour of getting the consumer group’s email, Ms. Schapiro appeared to change her mind about the rule. She sent Meredith Cross, the head of the SEC division with responsibility for writing the rule, a message headed: “Please don’t forward.”
The email said Ms. Schapiro had “2 worries.” The first was that if the investor groups “feel this strongly, it seems like we should give them a comment period.” The second concern: “I don’t want to be tagged with an Anti-Investor legacy.”
Such a legacy “wouldn’t be fair,” she wrote, “but it is what will be said given how high emotions run on anything related to the JOBS Act.”
“High emotions” is a bit fo an understatement. The hedge fund world’s most vocal leaders have been pushing hard for the solicitation ban to be lifted for some time. They want the extra capital that would come from tapping into more middle income customers, and they believe they can provide a valuable service.
“Say there’s a dentist and he’s got a million dollars and he wants to have $50,000 in hedge funds,” says Scaramucci. “Well, he can do that through SkyBridge.”
By his estimation, at least 63 per cent of SkyBridge’s 17,000 investors are of this type, but “I want to bring the industry to more and more people,” he says. He’d probably have billboards if the SEC would allow him to, which it doesn’t, at least not yet: Pending the agency’s approval, the new jobs act will lift the ban on hedge-fund advertising. “Maybe then we’ll get an Aflac duck,” he says.
Of course, the other side of this debate thinks that investors, ones who aren’t sophisticated enough to play in the hedge fund space, would end up being the ducks if the advertising ban were lifted — sitting ducks.
Either way, this is the last thing Mary Schapiro needs. She already has a whistleblower scandal on her hands.