We’ve been following the updates on the JOBS Act regulation, and here are some key takeaways from Sadis & Goldberg LLP this morning:
1. New Rule 506(c) under Reg D will permit general advertising and solicitation of private investment funds provided that they take reasonable steps to verify that all purchasers are “accredited investors” as defined in Rule 501 of Regulation D.
Key takeaway – There is no restriction on who a private investment fund can solicit, but there are restrictions on who is permitted to purchase the private investment fund’s securities (such as LP or LLC interests or shares).
2. The SEC has provided a non-exclusive list of methods that private investment funds may use to satisfy the verification requirements for individual investors, including:
i. Reviewing copies of any IRS form that reports the income of the investor and obtaining a written representation that the investor will continue to earn the necessary income in the current year; and/or
ii. Receiving a written confirmation from
a) An SEC registered broker-dealer or investment adviser;
b) Licensed attorney; or
Note: Such parties must take reasonable steps to verify the investors’ accredited investor status.
Key takeaway – All private investment fund subscription documents will need to be updated.
3. The existing Rule 506 exemption (re-designated as Rule 506(b)) which allows private investment funds to accept up to 35 non-accredited investors and an unlimited number of accredited investors with whom there is a pre-existing and substantial relationship will continue to be in effect. A private investment fund relying on this exemption is not subject to the new verification procedures.
Key takeaway – A private investment fund that wants to continue taking in non-accredited investors cannot publicly advertise or solicit.
4. Currently a private investment fund that sells securities under Rule 506 is required to file a Form D with the SEC no later than 15 calendar days after the first sale of securities in an offering.
•The new rules will require that Form D:
i. be filed at least 15 calendar days before engaging in general advertising or solicitation;
ii. be updated within 30 days of completing an offer.
• The final rules will become effective 60 days after publication in the Federal Register.
• All private investment funds relying on the CFTC 4.13(a)(3) exemption must exercise caution until the CFTC reconciles such exemptions with these new SEC rules.
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