The JOBS Act and Private Funds

hedge fund complianceOn April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (JOBS Act).  While much of the attention has been focused on the benefits to emerging growth companies, the JOBS Act will also benefit private equity funds, venture capital and hedge funds.

Before April 5, private equity, venture capital and hedge funds generally relied on Rule 506 of Regulation D under the Securities Act to raise capital outside the registration requirement of the securities laws.  Rule 506 was the go-to safe harbor exemption for private offerings primarily to “accredited investors.” It comes with a number of conditions, including that there be no general solicitation or advertising,

The JOBS Act eliminates this condition. Fund sponsors should note that persons engaging in general solicitation must take “reasonable steps to verify” that the investors are indeed “accredited investors”. What that really means will have to be addressed by the SEC which has 90 days to do so.  Let’s also not forget that the anti-fraud rules in the securities laws and the advertising restrictions issued by the SEC and FINRA still apply.  Another word of caution—until the SEC’s rulemaking is in place, fund sponsors are advised to follow their current practices and procedures.

We will provide an update on future developments. So stay tuned.

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