The Jumpstart Our Business Startups Act (the “JOBS Act”), which ushers in a series of reforms designed to facilitate capital formation by startups and other small or emerging enterprises by easing securities law compliance requirements, was signed into law by President Obama on April 5, 2012. The principal reforms of the JOBS Act range from expanding the allowable publicity for certain private placements, to simplifying initial public offerings for “emerging growth companies”, to reducing some of the ongoing compliance obligations for emerging growth companies during the early stage of status as a public company. We recently described the key practical implications of the JOBS Act’s principal reform in our Legal Alert dated April 5, 2012, which can be found here.While the JOBS Act appears to have been targeted at operating companies, it nevertheless has significant potential implications for privately offered investment funds. One of the most significant provisions of the JOBS Act for privately offered funds (and all private securities offerings) is the removal of the prohibition on general solicitation and advertising for securities offerings made pursuant to Rule 506 of Regulation D under the Securities Act of 1933 (commonly referred to as a “Reg D Offering”) – so long as sales are made only to accredited investors. This loosening of the most fundamental restriction on Rule 506 Offerings effectively takes the “private” out of “private placement”, and is expected by many to have a significant impact on small business capital formation. We recently discussed the implications of the removal of this prohibition in our Legal Alert dated April 24, 2012, which can be found here. Although it is currently unclear how the SEC will chose to amend its regulations to implement the changes to Rule 506 required by the JOBS Act, allowing general solicitation and advertising would significantly impact how hedge funds and other private investment vehicles are offered, since it potentially allows these funds to publicly broadcast their securities offerings to an unlimited pool of potential accredited investors. The JOBS Act requires that the SEC implement such rule changes with 90 days, but delays in this timeline due to a rulemaking backlog at the SEC is expected. Kilpatrick Townsend will continue to provide further updates regarding the JOBS Act as more information becomes available.
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