JOBS ACT LEGISLATION ALLOWS HEDGE FUND ADVERTISING.
The effect of the JOBS Act (which was enacted into law on April 5, 2012) is that private funds that are conducting offerings under Regulation D Rule 506 will be permitted to engage in general advertising, to issue press releases, to communicate information about fund offerings on publicly available web-sites and social media, and to place advertisements during the course of fund-raising, provided that, sales are made only to accredited investors. Moreover hedge funds will be able to solicit capital from investors with whom they do not have a substantive pre-existing relationship. Under the JOBS Act offerings pursuant to Regulation D Rule 506 will not be deemed “public offerings” under the “federal securities laws” as a result of general advertising or general solicitation. Thus, the JOBS Act is ultimately expected to allow a private fund relying on a 3(c)(1) or 3(c)(7) exemption to engage in general solicitation and general advertising.
The JOBS Act mandates the SEC to amend Rule 506 within 90 days. It is expected that the SEC may propose new rules within 90 days but not adopt final rules until after this deadline.
The JOBS Act also amends Section 12(g)(1)(A) of the Exchange Act to require that an issuer register its securities with the SEC when it has total assets exceeding $10 million and a class of equity security that is held of record by either (i) 2,000 persons in total or (ii) 500 persons who are not accredited investors. Section 502 of the JOBS Act further amends Section 12(g)(5) to provide that the definition of “held of record” does not include securities held by persons who received such securities under employee compensation plans. Prior to the effective date of the JOBS Act, a company (including a private fund) that has at least 500 shareholders of record and more than $10 million in assets is required to register under Section 12(g)(1)(A) of the Exchange Act and comply with public company reporting requirements under the Exchange Act, such as filing annual, quarterly, and current reports, proxy statements, and various transaction reports.
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