When the JOBS Act (formally the Jumpstart Our Business Startups Act) was signed by President Obama last year, 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. After more than a year of delay, the agency’s implementing rules are now here. But the SEC at the same time proposed a raft of controversial additions to the new rules, ensuring that the politically charged debate around the JOBS Act – in which consumer advocates and certain lobbies (such as that for the mutual fund industry) vigorously oppose the law and its opportunities for private funds while many business groups push for it – will continue. The awkward compromise offered by that two-step has nods to both sides of the debate. On the one hand, the SEC rules reflect only one of many changes called for by JOBS Act opponents, that being some increase in procedures to confirm investor qualifications (this addition was expected, although the final guidance is more strongly worded than in the SEC’s original proposal from a year ago). See “JOBS Act: Proposed SEC Rules Would Dramatically Change Marketing Landscape for Hedge Funds
,” Hedge Fund Law Report, Vol. 5, No. 34 (Sep. 6, 2012). On the other hand, the SEC proposal now asks whether the agency should add a number of new requirements that will cheer the opposition. Lest there be any mistake that the SEC is flashing a yellow light, the release also says that the agency’s examination staff will be charged with monitoring new offering activity in the private funds industry and that firms that expand their marketing profile should carefully consider their compliance infrastructure before doing so. On the same day that the SEC adopted the JOBS Act rules, it also adopted new rules that foreclose reliance on Regulation D in the case of securities offerings involving felons and other “bad actors.” In a guest article, Nathan J. Greene, a partner and Co-Practice Group Leader in the Investment Funds Group at Shearman & Sterling LLP, describes the above-referenced JOBS Act rulemaking in more detail and highlights important implications for hedge fund managers.