Compliance with securities laws involves a thorough understanding of the Securities Act of 1933. For example, if you have a private fund you need to be aware of two main exemptions from registration with the Securities and Exchange Commission (“SEC”):
- The first exemption is listed under Rule 506(b) of Regulation D. This rule states that a securities offering is exempt from registration if (1) the issuer does not solicit or advertise to market the securities, (2) the issuer only offers or sells securities to accredited investors and (3) the issuer takes reasonable care to ensure that the purchasers are not buying the securities with the intent to resell the securities.
- The second exemption from registration for private funds, also found in Regulation D, is Rule 506(c). This rule provides all the rules in Rule 506(b) with the exception that the prohibition on general solicitation does not apply and the issuer of the security must take reasonable steps to ensure that each purchaser is an accredited investor.
A private fund may be exempt from registration under Rule 506(b) and 506(c) of Regulation D. However, a private fund adviser is no longer exempt from registration. As a private fund adviser, there is a myriad of complex rules and regulations which apply to private fund advisers. Further, there are significant penalties for the violations of these rules and regulations — even inadvertently.
The Most Important Private Funds Regulation
The most important regulation for private funds is the requirement for an adviser to file a Form PF. The Form PF is required when (1) an advisory firm is registered or required to federally register with the SEC as an investment adviser, (2) the advisory firm manages one or more private funds and (3) the advisory firm manages at least $150 million in private fund assets under management.
The Form PF is reported to the Financial Stability Oversight Council (FSOC). The FSOC was established with the passage of the financial reform act known as Dodd-Frank. Its purpose was to monitor risks associated with the U.S. financial system.
The Form PF requires a host of specific data with specific deadlines each year for the investment adviser to file. The failure to file can come with fines and other regulatory actions against the private fund adviser.
Completing a Form PF requires answering complex questions and internal compliance required. We recommended that private fund advisers begin early when it comes to gathering information and documentation needed to complete the Form PF.
For More Information
If you have questions regarding the Form PF, compliance of private fund advisers, or other securities law and compliance related questions, please contact our office at (513) 241-0400 to schedule an initial consultation. You can also fill out our contact form and one of our attorneys will respond to you shortly.
We look forward to hearing from you!