As a follow-up to our coverage on the amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act of 1933 - the ban on hedge fund advertising has been lifted effective September 22, 2013. This change is a result of Jumpstart Our Business Startups Act or the “JOBS Act”, as it is more popularly referred to. The JOBS act has changed legislation of the Securities Act of 1933 which restricted companies seeking private investments from publically advertising. As of Monday (9/23), portions of the JOBS act became effective, allowing non-registered investment companies and their respective firms to be allowed to reach potential new investors through television, radio and internet. These private placements have long been limited to “accredited investors”; and those restrictions are still in place, so investors will have to meet certain net worth and earnings thresholds to qualify to invest in these private offerings. Therefore, advertisement is not expected to be as “mainstream” as a product such as Pepsi, but will be more focused to avenues where they can reach these “accredited investors.”
In addition to publically advertising, firms of non-registered investment companies will also be able to conduct business more freely. Web-sites will be more accessible and be able to display more information about fund performance. Also, fund managers will now be able to freely talk about fund performance to reporters and on television.
This newly effective legislation significantly eases restrictions on advertising. It will be exciting to see if the changes translate into an in-flow of capital from previously untapped investors.
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Tagged accounting, advertising, effective, financial services, funds, hedge funds, investment, investment company, JOBS, JOBS act, legislation, nonregistered investor, private advertising, public advertising, registered investor, SEC, WithumSmith+Brown, WS+B
July 31st of this year I blogged on the Sun Capital decision handed down by the First Circuit U.S. Court of Appeals, in my article entitled, “Attacking Carried Interest through the Back Door.” The following is an update, intended to inform you on what’s happened with the decision since then.
On August 7, 2013, Sun Capital filed a petition for a full panel rehearing (that means all the sitting judges for that Circuit Court). The Private Equity Growth Council, an industry group, also filed an amicus brief in support of the rehearing. However, on August 23rd the First Circuit Court of Appeals denied the taxpayer’s petition for rehearing without any discussion. This was not surprising since the Sun Capital opinion was heard by a three judge panel and the First Circuit only has nine judges in total.
Away from the courtroom, the tax practitioners have been bickering as to the precedential value of the opinion in the tax world. Recall that the case was actually not about tax but rather pension liability under ERISA. Nevertheless, the court found that a private equity fund was engaged in a trade or business due to the activities of its agent, the general partner. The tests the court looked to are not dissimilar to what a tax court would look to. If the IRS or a court were to take a similar tack it could mean an early end to the beneficial tax treatment of carried interests. Moreover, it could also have ramifications for off-shore funds who may be found engaged in a U.S. trade or business or for tax-exempt partners’ UBIT concerns. Arlene Fitzpatrick, attorney-advisor in the Treasury Office of International Tax Counsel was quoted on September 4th saying, “We could speculate … this is not a tax case … about what the implications are in the tax area, but there is already a lot to go on” specific to tax in existing case law. Look for more on this theory in upcoming IRS skirmishes with PE taxpayers.
Do not hesitate to reach out to your WS+B contact, for any questions you have regarding this update.
- Tony Tuths