New York (HedgeCo.Net) – The CFTC has issued a letter providing exemptive relief (for some hedge funds) from the general solicitation restrictions in order to harmonize the CFTC rules with the SEC rules changes arising from the Jumpstart Our Business Startups Act (the “JOBS Act”).
The Wall Street Journal reports: The Commodity Futures Trading Commission late Tuesday eased long-standing marketing restrictions on so-called private offerings by hedge funds and other funds sold only to wealthy investors, a move aimed at aligning the CFTC’s restrictions with similar rules set by the Securities and Exchange Commission.
The SEC had previously approved a motion to allow hedge funds, and other firms who created private offerings to advertise to whoever they want, and this announcement harmonies the regulatory exemptions with the law.
The JOBS Act became law in March 2012 made the initial recommendation to allow “general solicitation” for private issuers. The SEC was given time to evaluate how they could implement it.
During the comment section the SEC received over 200 comments, many of which opposed the proposal to to fear of a rush of fraudulent offerings. However, the proponents of the proposal stated that the changes would boost capital formation.
With the general understanding that the SEC would pass the proposal and allow advertising, the issue became how to ensure that hedge funds only take in investments from accredited investors.
Some of the details of the new rule are:
1. Hedge Funds aren’t forced to generally solicit. If you choose not to, there will be no changes for you.
2. If you want to generally solicit (advertise) you will need to file a “Form D” with the SEC at least 15 days before you start advertising.
3. The SEC is very interested in how advertising is being used by private issuers, and have made changes to Form D filings. Funds that make public solicitations will also need to file an amended Form D within 30 days of the offering’s termination.
Failure to follow these rules will likely result in a ban from creating additional securities for a year or more.
The lift on hedge funds advertising will go into effect in about two months, once the regulations have been printed and made public.
Alex Akesson
Editor for HedgeCo.net
alex@hedgeco.net
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