Private funds will be able to advertise and solicit for
investor, provided all of the investors are "accredited
investors." The Jumpstart
Our Business Startups Act will dramatically change the way capital raising
for private funds operates.
The drawback is the loss of 35 non-accredited investors
in the fund. That exception has been
eliminated. Funds will need to wait until the Securities and Exchange Commission
issues the rules under Section 201 of the JOBS Act.
Part of those rules may be a mandated approach to
determine if someone is an accredited investor.
"Such rules shall require the issuer to take reasonable
steps to verify that purchasers of the securities are accredited
investors, using such methods as determined by the Commission."
The SEC may take the opportunity to mandate an approach
to validate an investor's financial standing. As with most regulations, it
could clear up uncertainty or create a paperwork headache (or both).
Will you need a copy of an investor's W-2? A certified
financial statement? Those are reasonable requests. However it would create
much more personal information that would need to be safeguarded by the fund
There is the possibility that the mandated approach would
also address the requirements to determine if an investor is "qualified client"
under the Investment Advisers Act or a "qualified
purchaser" under the Investment Company Act.
We will have to wait and see what comes out of 100 F Street.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.
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