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CFTC Grants Relief to Allow Limited Solicitation for CPO Hedge Funds

In September 2103, the SEC adopted rules allowing private issuers of securities, including hedge funds, to engage in advertising and general solicitation under Regulation D. Until the recent CFTC announcement, hedge funds that include commodities or futures within their portfolios could not engage in general solicitation, since such instruments are regulated by the Commodities Futures Trading Commission (CFTC).

Exemption For 506(c) Offerings

On September 9, 2014, the CFTC issued an exemptive order to address this issue. The exemptive order applies only to issuers that rely on Regulation D Rule 506(c), as well as certain Rule 144 issuers. The order permits general solicitation for Commodity Pool Operators (CPSOs) relying on the “de minimus” exemption under Regulation 4.13(a)(3) or relief from certain compliance requirements of Regulation 4.7 to conduct certain limited general solicitation.

Must file a claim to be valid

Unlike Rule 506(c), the CFTC exemption is not self-executing. To use this exemption, CFTC regulated hedge funds must file a claim for exemptive relief with the Division of Swap Dealer and Intermediary Oversight of the CFTC. The claim of exemptive relief is effective upon filing as long as the claim is materially accurate and complete. The claim of relief requires certain basic information concerning the filing entities.

The exemption as enacted is intended as a temporary measure and should be followed by more comprehensive regulation.


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