Senate Lifts Ban on Private Fund General Solicitation and Advertising
March 22, 2012 § 2 Comments
As expected, the Senate passed its version of the Jumpstart Our Business Startups (JOBS) Act today with bipartisan support. The Senate bill adopted amendments to the crowdfunding provisions that differ from the version passed in the House. The chambers will need to reach a compromise on that portion of the legislation.
The Senate version did not amend Section 201 of the Act that repeals Regulation D’s prohibition on general advertising and solicitation for securities offerings to accredited investors under Rule 506. As previously noted, nearly all hedge funds, private equity funds and other private investment vehicles rely on that rule when selling interests to their investors.
Provided the House and Senate reach a compromise on the crowdfunding provisions, the SEC will have 90 days from enactment to modify its rules to reflect the repeal. Given the broad support in both Congressional chambers, such a compromise is almost certain to happen.
What this means for hedge fund and other private fund managers, is that sometime this summer they can expect to have much broader means of reaching out to and marketing to prospective investors. Managers should still take steps to make sure all advertising or soliciting materials comply with existing antifraud provisions under the Investment Advisers Act and federal and state securities laws.
Given the SEC’s and state securities administrators’ vocal opposition to this portion of the JOBS Act, this isn’t likely to be the last word on regulation of private fund marketing. We can expect future rulemaking intended to address what the regulators already consider to be widespread investment fraud in Rule 506 private offerings. In the meantime, this is at least one area where investment advisers have had their regulatory burdens lightened.
Jack G. Martel is the author of Investment Adviser Law Blog which is devoted to providing information and discussion of interest to investment advisers, private fund managers and others in the financial management industry. Jack is a partner in Ragghianti | Freitas LLP. He has over fifteen years experience in general business and securities transactions with a focus on assisting investment advisers, fund sponsors and managers in all manner of legal, regulatory and compliance issues. Jack can be reached at 415.453.9433.