JOBS Act: Proposed SEC Rules Would Dramatically Change Marketing Landscape for Hedge Funds

When the JOBS Act (formally the Jumpstart Our Business Startups Act) was signed by President Obama in April, it directed that one of its most transformational provisions – the relaxation of decades-long limits on public offerings of unregistered securities – not go into effect until the Securities and Exchange Commission (SEC) set rules to implement the changes.  Though the SEC was given 90 days, or until July 5, the agency did not act until almost two months after the deadline.  As summer wound down, emotions surrounding the law flared, with a spate of increasingly strident public comment letters filed with the SEC.  Some letters attacked the entire premise of the JOBS Act and urged all manner of burdensome add-ons, while others demanded that the SEC implement the Act without delay and with a minimum of new obligations.  The proposed rules emerged on August 29, with nods to both sides of the debate.  In a guest article, Nathan Greene, a partner and Deputy Practice Group Leader in the Asset Management Group at Shearman & Sterling LLP, discusses the background of the JOBS Act; the proposed rules; special regulatory considerations for investment funds (including considerations under the Investment Advisers Act, Investment Company Act, Commodity Futures Trading Commission rules and Regulation S); factors that may be relevant in assessing the reasonableness of steps taken by investment managers to verify the accredited status of investors; the political debate surrounding the JOBS Act and the rules thereunder; and adjacent regulation that investment managers would do well to keep in mind when adjusting their approaches to marketing in light of the JOBS Act rules.

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