This week I gave a talk about the new and proposed amendments to Form D to the students at NYU Professional Studies program class on Hedge Funds Operations and Due Diligence. Here are the detailed slides from my presentation.
First, I gave an overview of private placements in general, and how Regulation D and Rule 506 fit within them. I then talked about the new amendments to Rule 506 (meaning the introduction of Rule 506(c) that allows general solicitation and advertising if all purchasers are accredited investors and what are the reasonable steps that funds will need to take to verify the investor status) and the new bad actor disqualification provisions.
Finally, I discussed the proposed rules that propose to add new Form D filing and disclosure requirements as well as the additional disqualifying events, required legends and proposed rule 510T.
My whole presentation was accompanied by lively Q&A. It was interesting to get a perspective on these new legal developments from the people who work in the fund industry. Two things to note here. First, the group did not seem to be enthusiastic about using general solicitation and advertising to raise capital for hedge funds. The consensus was that it was strictly a relationship-based business. Second, people felt uneasy about the proposed additional legends and disclosures when using performance data in solicitation materials. Everyone agreed that some warnings were needed. However, the group felt that there was no single standard or criteria used by the funds to calculate and present performance data, so standardized performance reporting could lead to more confusion.
I guess, we are all impatiently waiting for the final rules.
This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.