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From: Sadis & Goldberg LLP Financial Services Group
[mailto:cspratt@sglawyers.ccsend.com] On Behalf Of Sadis & Goldberg LLP
Financial Services Group
Sent: Tuesday, April 03, 2012 3:27 PM
To: ncallahan@rosemontseneca.com
Subject: Simplifying the JOBS Act


Sadis & Goldberg LLP
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Sadis & Goldberg LLP

Financial Services Alert


Simplifying the JOBS Act


April 3, 2012


Following the swift approval of both the House of Representatives and the
Senate, President Obama is expected to sign the Jumpstart Our Business
Startups Act, H.R. 3606 ("JOBS Act") as early as this week.[1] Congress
expects that the JOBS Act will create jobs in the United States, in part, by
providing certain issuers easier access to public capital. As written, the
JOBS Act requires the Securities & Exchange Commission ("SEC") to revise
existing rules to implement many of the provisions of the JOBS Act. This
Alert provides a brief overview of the key changes to the securities laws
effectuated by the JOBS Act, which we expect will affect alternative
investment vehicles, such as hedge funds, private equity funds and fund of
funds (collectively, "Private Funds").

Overview of the JOBS Act.

Once adopted, the JOBS Act will, among other things: (i) eliminate the
prohibition against general solicitation and general advertising in
connection with private offerings to accredited investors conducted in
reliance on Rule 506 of Regulation D promulgated under the Securities Act of
1933, as amended ("Securities Act"); and (ii) increase the threshold number
of investors for most issuers in connection with registration requirements
under the Securities Exchange Act of 1934, as amended ("Exchange Act"), from
500 to (a) 2,000 or (b) 500 non-accredited investor "holders of record". For
a full copy of the JOBS Act click here:
http://www.gpo.gov/fdsys/pkg/BILLS-112hr3606enr/pdf/BILLS-112hr3606enr.pdf
<http://r20.rs6.net/tn.jsp?e=001-rRRCI5LP7tzLWMD5c_U1pANEPGIjAfvFwPp-wQBJzeO
icihC4Uyz3Nt0CllHNyxgFm3Oo9NK7vieiSvhMY0vRvlxIPcQs5quFfIXefFaorkWx-plHDiyf9K
TQ3hXgfT045LVuW63-JK-Zd7GqllKlx3E-UYpXaIRidlhy-hJzcCQnV0N6P5H3IO9mOt8QX1> .

General Solicitation And General Advertising For Private Funds.

Most Private Funds conduct their offerings in reliance upon the following
exemptions from registration: (i) Rule 506 of Regulation D under the
Securities Act; and (ii) either Section 3(c)(1) or Section 3(c)(7) of the
Investment Company Act of 1940, as amended ("Investment Company Act"). Under
the Securities Act, any offer to sell securities must either be registered
with the SEC or meet an exemption. Rule 506 of Regulation D of the
Securities Act provides exemptions from the registration requirements,
allowing Private Funds to offer and sell their securities without having to
register the securities with the SEC.

Rule 502(c) of Regulation D prohibits a Private Fund from engaging in any
form of general solicitation or general advertising. While current rules do
not define "general solicitation" or "general advertising," Rule 502(c)
broadly states that these may include, but are not limited to, "any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media or broadcast over television or radio;
and any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising." Pursuant to Regulation D, Private
Funds have been prohibited from advertising or contacting potential
investors with whom the manager of the fund or a placement agent did not
have a pre-existing relationship. While Regulation D prohibits a Private
Fund from engaging in a general solicitation, Sections 3(c)(1) and 3(c)(7)
prohibit a Private Fund from making a public offering.

The JOBS Act is ultimately expected to allow a Private Fund relying on
Regulation D and Sections 3(c)(1) or 3(c)(7) under the Investment Company
Act, pursuant to certain conditions, to engage in general solicitation and
general advertising. Section 201(b)(2) of the JOBS Act provides that
transactions conducted pursuant to Rule 506 "shall not be deemed public
offerings under the Federal securities laws as a result of general
advertising or general solicitation." The SEC has previously provided that
offerings that comply with Rule 506 do not constitute a public offering for
purposes of Sections 3(c)(1) or 3(c)(7) of the Investment Company Act.[2]
Section 201 of the JOBS Act requires the SEC, no later than 90 days after
the JOBS Act is signed by the President, to eliminate the prohibition
against general solicitation and general advertising in connection with Rule
506 offerings; provided that the securities are sold solely to accredited
investors. Until the SEC amends existing regulations, the general
solicitation and general advertising prohibitions continue to remain in
effect.

Registration Triggers Under Section 12(g) of the Exchange Act.

Section 12(g)(1) of the Exchange Act currently requires an issuer that has a
class of equity securities held of record by 500 or more persons to register
that class with the SEC within 120 days after the last day of the first
fiscal year in which the issuer had total assets exceeding $10,000,000. The
JOBS Act increases the threshold for registration under the Exchange Act for
becoming a public reporting company from 500 or more record holders to (a)
2,000 or more record holders or (b) 500 or more recordholders who are not
accredited investors. The JOBS Act also provides that, for all issuers,
persons holding securities received pursuant to an employee compensation
plan in transactions exempted from the registration requirements of Section
5 of the Securities Act (e.g., because they were issued in a private
placement under Regulation D under the Securities Act) will be excluded from
the record holder count. The SEC is required to: (i) adopt safe harbor
provisions for determining whether holders qualify for this employee
compensation plan exclusion; and (ii) examine whether new measures are
needed to enforce the anti-evasion provision of Rule 12g5-1(b)(3) under the
Exchange Act, and to communicate its recommendations to Congress within 120
days after enactment. Subject to the specific exceptions noted above, the
JOBS Act does not change the SEC's current method for determining the number
of "record holders" under Section 12(g).

Conclusion.

The JOBS Act will affect the distribution of Private Funds in the United
States. However, it is too soon to predict the extent of its impact on the
alternative investment industry. We expect that these changes will enhance
the ability of managers of smaller Private Funds who have been managing or
operating their businesses at a competitive disadvantage against managers of
larger funds with mature distribution channels or investor relations teams.
Further, we expect that managers of Private Funds of all sizes will be more
vocal with the media than in the past, as many managers of Private Funds
have been hesitant about speaking publicly in connection with the fear of
violating the prohibition against general solicitation. Nonetheless, we
believe that there may still be significant restrictions against general
solicitation and general advertisements. In particular, (i) while
implementing the regulations of the JOBS Act, the SEC may further scrutinize
and impose additional prohibitions in connection with advertisements
regarding Private Funds under Section 206 of the Investment Advisers Act of
1940, as amended ("Advisers Act"), an anti-fraud provision, and Rule
206(4)(1) promulgated thereunder; (ii) there may be inconsistencies with
rules governing placement agents registered with the Financial Industry
Regulatory Authority, engaged by Private Funds to assist in attracting
investors' assets; (iii) there may be inconsistencies with rules governing
managers of Private Funds subject to the Commodity Futures Trading
Commission and the National Futures Association regulations; and (iv)
various state regulations (e.g., managers not registered as an investment
adviser, blue sky laws) may still prohibit managers of Private Funds from
engaging in general solicitation.

With regard to Section 12(g), we believe the JOBS Act will have minimal
impact on the structuring of Private Funds since Section 3(c)(1) separately
limits the number of investors in a Private Fund relying on such exemption
to not more than 100 persons. While other Private Funds relying on Section
3(c)(7) may benefit, we have found few Private Funds having an issue with
the previous 500-person threshold for Exchange Act registration.

With regard to timing, based upon our firm's experience with SEC rulemaking,
while we anticipate that the SEC may propose new rules within the required
deadlines, we do not anticipate that final rules will be adopted until after
the deadline. Prior to making use of any advertisements, Private Funds
should confer with legal counsel to ensure compliance.


_____

[1]On March 27, 2012, the House of Representatives passed the JOBS Act by a
380-41 vote. The week prior, the Senate passed an identical version of the
JOBS Act by a vote of 73-26.

[2]See, e.g., STARS & STRIPES GNMA Funding Corp., SEC No-Action Letter (Apr.
17, 1986); see also Advisers Act Release No. 22597 (Apr. 3, 1997).

For further information about this Alert, please contact:


Ron S. Geffner

Partner

212.573.6660

rgeffner@sglawyers.com


Please feel free to discuss any aspect of this Alert with your regular Sadis
& Goldberg contacts or with any of the members of our Financial Services
Group, whose names and contact information are provided below.


Alex Gelinas, 212.573.8159, agelinas@sglawyers.com

Lance Friedler, 212.573.8030, lfriedler@sglawyers.com

Paul Fasciano, 212.573.8025, pfasciano@sglawyers.com

Ron S. Geffner, 212.573.6660, rgeffner@sglawyers.com

Steven Etkind, 212.573.8412. setkind@sglawyers.com

Steven Huttler, 212.573.8424, shuttler@sglawyers.com

Yehuda Braunstein, 212.573.8029, ybraunstein@sglawyers.com


If you would like copies of our other Alerts, please visit our website at
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