Reconsidering the Prohibition against General Solicitation during Section 3(c)(7) Offerings


Daniel P. Taub


This paper examines the seventy year history of the general solicitation prohibition during private offerings and then analyzes its continuing relevance as applied to Section 3(c)(7) offerings. The S.E.C. Staff recently issued a report questioning the continuing value of prohibiting general solicitation during private offerings made pursuant to Section 3(c)(7) of the Investment Company Act. If the S.E.C. were to follow the recommendation in the S.E.C. Staff Report, this would have tremendous implications for a growing number of hedge funds, and other investment companies utilizing the Section 3(c)(7) exemption. By allowing general solicitation, the S.E.C. would be reversing a policy with over seventy years of history in order to increase issuers’ access to capital. These potential efficiency gains could come at a cost, however, since many fear that repealing the prohibition against general solicitation will eliminate one more protection for individual investors from risky investment opportunities.


Administrative Law | Banking and Finance Law | Business Organizations Law | Commercial Law | Securities Law

Date of this Version

May 2004