The Jumpstart Our Business Startups Act enacted on April 5, 2012 (the “JOBS Act”), directed the Securities and Exchange Commission (the “SEC”) to amend Rule 506 of Regulation D (“Rule 506”), promulgated under Section 4(a)(2) (previously Section 4(2)) of the Securities Act of 1933, as amended (the “Securities Act”), to allow issuers to engage in “general solicitation” and “general advertising” in offerings made under Rule 506, so long as all purchasers of the securities in such offerings are accredited investors. On August 29, at the conclusion of an unusually contentious open meeting, the SEC proposed an amendment to Rule 506 to implement these provisions of the JOBS Act. If adopted as proposed, the amendment will provide certain hedge funds, private equity funds and other private funds (as well as other issuers making Regulation D offerings) with substantially more freedom in marketing fund interests. Similarly, these proposed changes might allow sponsors of publicly offered mutual funds that also manage private funds to integrate further the marketing and distribution of their registered and unregistered products. However, significant questions remain regarding what steps fund sponsors may be required to take under new Rule 506(c) to verify that investors in Rule 506(c) offerings are “accredited investors,” the status of Regulation S offshore offerings where issuers have engaged in general advertising or general solicitation in connection with a simultaneous Regulation D offering, and the extent to which Commodity Futures Trading Commission (“CFTC”) regulations may continue to constrain the ability of private fund sponsors to engage in general advertising and general solicitation. This alert summarizes proposed Rule 506(c) and considers outstanding issues relevant to private fund sponsors.
Please see full alert below for more information.
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