During an open meeting of the U.S. Securities and Exchange Commission (the SEC) on July 10, 2013, the SEC adopted a rule that lifts the ban on general solicitation of unregistered securities offerings and paves the way for widespread advertising of private securities issuances, including sales of interests by private funds, such as hedge funds and private equity funds. The SEC also adopted a rule that prohibits certain “bad actors” from taking part in such offerings. Finally, the SEC proposed new rule and form amendments that seek to monitor the advertising practices of unregistered offerings. Combined, the new rules will have a lasting impact on the securities industry, and particularly, the private fund industry.

I. Lifting the Ban on General Solicitation -

Background -

Pursuant to Section 201(a) of the Jumpstart Our Business Startups Act (the JOBS Act), signed into law by President Obama on April 5, 2012, the SEC has amended Regulation D to add new Rule 506(c) under the Securities Act of 1933, as amended (the Securities Act). After much debate in the industry, and nearly a year after its Congressionally mandated deadline, the SEC adopted new provisions that are substantially similar to those proposed by the SEC last year. As the Adopting 506(c) Release notes, “commenters were sharply divided in their views” on the proposed changes to the general solicitation rules. Many viewed these rules as a welcome change that will foster economic growth in the United States. Others viewed them as a travesty, effectively gutting investor protection rules. In the end, however, Chairman Mary Jo White urged passage of the new provisions given, in her words, “the explicit language of the JOBS Act as well as the statutory deadline that passed last July.”