Today, the President signed into law the Jumpstart Our Business Startups Act (the "JOBS Act"). In a prior Clients and Friends Memorandum dated March 13, 2012,1 we described certain provisions of the version of the JOBS Act passed by the House of Representatives on March 8, 2012 that are significant for private investment funds.
These provisions include (1) amending Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") to provide that an issuer (including a private investment fund) is required to register a class of its equity securities with the Securities and Exchange Commission (the "SEC") when such securities are held of record by either (a) 2,000 persons or (b) 500 persons who are not accredited investors (this amendment represents a significant increase from the prior threshold of 500 holders of record) and (2) directing the SEC, no later than 90 days after enactment of the JOBS Act, to revise Regulation D under the Securities Act of 1933 (the "Securities Act") to provide that the prohibition against general solicitation or general advertising in Regulation D shall not apply to offers and sales of securities pursuant to Rule 506 of Regulation D under the Securities Act, provided that all purchasers of such securities are "accredited investors." Since private investment funds generally only accept investors who are accredited investors, this change would permit such funds to engage in general solicitation or general advertising in connection with an offering that complies with Rule 506 of Regulation D.
As we mentioned in our prior Memorandum, Section 3(c)(1) and Section 3(c)(7) of the Investment Company Act of 1940 prohibit a fund that relies on either exemption from making or proposing to make a "public offering." The JOBS Act appears to permit such a fund a continue to rely on such exemptions if such fund engaged in general solicitation in connection with an offering that complies with Rule 506 of Regulation D. However, the JOBS Act appears not to affect similar marketing restrictions on funds that rely on certain exemptions from registering with the Commodity Futures Trading Commission (the "CFTC"). For example, in order to rely on CFTC Rule 4.13(a)(3), fund interests must be offered and sold without marketing to the public in the United States. Therefore, depending on the CFTC exemption relied on, a fund may still be subject to certain restrictions on marketing.
The final version of the JOBS Act did not change the provisions discussed in this memorandum.2
Please see the prior Memorandum for further information.
Footnotes
1 The prior Clients and Friends Memorandum is available at http://www.friedfrank.com/siteFiles/Publications/3-13-12-%20TOC%20Memo-House%20Passes%20Bill%20Raising%20Limit%20on%20Number%20of%20Shareholders%20an%20Issuer%20May%20Have%20Before%20Being%20Required%20to%20Register%20with%20the%20SEC.pdf.
2 The final version of the JOBS Act changed certain provisions of the House bill relating to crowdfunding. The Senate rejected a proposed amendment that would have directed the SEC to revise the definition of "held of record" as used in Section 12(g) of the Exchange Act to include beneficial owners.
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