Not all hedge funds are subject to investment advisor registration. To determine whether a fund needs to register, we ask our clients the following four questions:

1. Will the fund invest in “securities?”

2. What will be the size of the fund?

3. In what state is the fund management team physically located?

4. In what states will the investors be located?

The SEC’s adoption of Rule 506(c) to allow general advertising and solicitation for private placement offerings has left us with some questions of practicality. We know from Rule 506(c) that issuers must take “reasonable steps” to verify the accreditation status of investors. We also know that the most non-invasive means of verifying that an investor is accredited is through obtaining written certification from a licensed professional, (attorney, CPA or broker/dealer) stating that the professional has reviewed documentation demonstrating that the investor meets the accreditation standard, as was set forth by the SEC. See the Capital Fund Law Group post on the adoption of Rule 506(c) here. But where can we find professionals willing to verify accreditation?

On July 10, the SEC adopted the long-awaited final rules to implement sections of the JOBS Act to lift the ban on general advertising and solicitation for certain Regulation D private placement offerings (as well as 144 offerings).  At the same time, the SEC proposed new rules that, if adopted, will require additional regulatory burdens. The rules will take effect 60 days from the date of publication in the Federal Register.