JOBS Act Update: General Solicitation Provision

I first introduced readers to the JOBS Act in April of this year. For hedge fund managers, especially ones running smaller books, I believe the JOBS Act is one of the most important pieces of legislation that will affect their business. Under Title II of the bill, managers can generally solicit REG D offerings to the public as long as all ultimate purchasers are accredited. Previously, one needed to have a previous relationship to market to investors. In theory, that is all about to change.

The bill gave the SEC 90 days to revise the general solicitation rules that are currently used. That day was SUPPOSED to be July 5th. Unfortunately, the SEC will not meet the deadline.  SEC Chairman Mary Schapiro said this to Congress a few weeks ago:

"The rulemakings to revise Rule 506 and Rule 144A are both required to be completed within 90 days of enactment of the JOBS Act. As I stated to Congress prior to the passage of the Act, time limits imposed by the JOBS Act are not achievable. Here, the 90 day deadline does not provide a realistic timeframe for the drafting of the new rule, the preparation of an accompanying economic analysis, the proper review by the Commission, and an opportunity for public input. Although we will not meet this deadline, the staff has made significant progress on a recommendation and economic analysis, and it is my belief that the Commission will be in a position to act on a staff proposal in the very near future."

You can read her entire testimony here: Mary Schapiro's Testimony re JOBS Act

The SEC has put on their website all the public comments they have received regarding Title II of the JOBS Act - you can read them here: Public Commentary on Title II of JOBS Act. One of my favorite is from Phillip Goldstein, head of Bulldog Investors, a well known hedge fund (Goldstein is one of my favorite investors, unfortunately I do not know anyone that works at Bulldog), that faced off against the Massachusetts government that said he was marketing his fund to average investors by having a website that discussed Bulldog's tactics. The case nearly made it to the Supreme Court.

In his letter, he points out that a large contingent of the public commentary calling for very strict and onerous hurdles on future general solicitation is coming from the mutual fund industry which will now have to compete for investor's dollars with hedge funds that publicly market themselves to the public. Goldstein writes:

"Ironically, these commentators, which include the Investment Company Institute and a variety of self-proclaimed advocates for investors, do not disclose their real motives. Having failed to persuade Congress or President Obama of the merits of their arguments, they now appeal to the Commission to water down the lifting of the ban on general advertising and solicitation by imposing onerous regulations on unregistered issuers that Congress did not mandate and that would undermine its intent. (In the case of the ICI, it also does not disclose that its true motive is to protect its member mutual funds from competition by hedge funds for accredited investors.)"

A meeting has been scheduled for August 22nd, 2012 to consider the rules to eliminate the ban on general solicitation. Seems like we will be waiting until at least then. For small, up and coming hedge funds, this is important stuff to be on top of. In addition, if you are a content provider, you have a new client that could advertise on your site: banner ads for hedge funds. Going to be very interesting to see what comes out of this. Stay tuned.