Among the provisions of the Jumpstart Our Business Startups (JOBS) Act, signed in April 2012, is a mandate that the SEC remove the restrictions on general solicitation or general advertising for securities offerings relying on Rule 506 exemptions.
Under previous rules, any entity wishing to raise capital by selling securities must register with the SEC unless the entity qualifies for one of several exemptions to the registration requirement. Private funds such as hedge funds generally rely on the Rule 506 exemption, which specifies that such entities may only market to accredited investors.
The SEC first proposed rules in August 29, 2012, and on July 10, 2013, issued a suite of rulemakings, including two final and one newly proposed rule. While the release received a lot of attention in the press, much of it was either misinterpreted, or concentrated on hedge fund performance, fraud, possible advertising slogans or other superfluous information.
Lance Zinman is a law partner at Katten Muchin Rosenman and head of the firm’s Chicago financial services practice. He regularly advises hedge funds, commodity pools, commodity trading advisors and proprietary trading firms on compliance and regulatory matters. He sat down with John Lothian News Editor-at-Large Doug Ashburn to discuss the recent SEC rule on private fund solicitation, released July 10, 2013. In the interview, Zinman cuts through the misinformation and explains the key points of the rules. He also explains how the 506 exemption may not be claimed by anyone with a “disqualifying event” and other limitations. He also highlights a few areas in which the rule is unclear or needs to be harmonized with other regulators such as the CFTC.
According to Zinman, it remains to be seen whether this rule will truly usher in a new wave of marketing on behalf of hedge funds and other private funds.