New York (HedgeCo.Net) – The SEC has released more details on some of the restrictions hedge funds and others will face in light of the new, looser rules on general advertising.
“As we fulfill our mission to facilitate capital formation and maintain fair and efficient markets, the Commission must always focus on strong investor protections,” said Mary Jo White, Chair of the SEC. “We want this new market and the private markets in general to thrive in a safe and efficient manner, and these rules we adopt and propose are designed to facilitate that objective.”
Hedge fund regulatory expert FrontLine Compliance reports that the new SEC rulemaking has plenty of restrictions around what it will and will not allow under the revised Rule, such as:
- Individuals with disciplinary histories will not be allowed to participate in 506 offerings, going forward (“bad actor” prohibition)
- Individuals involved in active offerings and with prior disciplinary histories MUST provide disciplinary history disclosures to current (and prospective) investors
- Issuers will have a higher duty of care to ensure an adequate verification process is in place for investors, such as collecting tax returns and receiving written statements from qualified referring parties (i.e., CPAs)
- Rule 144A offerings may be offered to non-QIB persons, but they may only be sold to QIB entities or entities reasonably believed to be QIBs at the time of sale
- Issuers must notify the SEC that they are using general solicitation methods (in advance) by filing a revised Form D
The SEC has also issued a new proposal for additional Reg D changes, some of which would apply to ALL issuers – even those not “generally soliciting”:
- Additional changes to Reg D are in the works via this proposal that will significantly alter the Form D filing process to make both the filing process and the Form itself much more onerous for issuers because of increased levels of disclosures regarding offering details
- Under the new proposal, those firms that elect to utilize general solicitation methods will need to file written marketing materials with the SEC
- Rule 156 of the Securities Act (performance advertising requirements currently applicable to mutual funds) would now apply to ALL private funds under the new proposal
“Private fund issuers are urged to act cautiously regarding the use of general solicitation.” Frontline Compliance said, “The SEC has recently stepped up its examination focus on private funds and they will scrutinize fund distribution practices even more closely in light of these rule changes.”
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