Companies raising capital that are relying on Rule 506(c) (often informally called “Accredited Investor Crowdfunding”) for their offering of securities have several options as to how to verify whether their investors’ are indeed “accredited investors.” Since most offerings of securities generally rely on Rule 506(b) which allows for the investor to self-verify (e.g., through a simple questionnaire), founders are not as familiar with the verification process of Rule 506(c). This post will briefly explain Rule 506(c) and describe some of the options companies have to verify its investors as accredited investors.
[Read more…]Handling Trade Errors: Best Practices for Private Fund Advisers
New investment advisers are typically focused on creating marketable investment programs and raising capital. Legal matters are often delegated to outside counsel and the adviser’s investment in operations, staffing and compliance is often kept at a minimum to start. While this strategy may make sense on a budgetary level, new advisers need to devote some attention to inevitable operational issues in order to minimize their cost and disruption. At the top of this list is the issue of trade errors.
[Read more…]The Different Meanings of the Word “Registration” for Private Funds
One of the first questions that new private fund advisers often ask me is whether they will need to “register” with the SEC. They are often thinking in terms of registration as an investment adviser. However, even if a fund adviser is exempt from registration as an investment adviser with the SEC, he or she also needs to understand the impact of other federal securities laws, such as the Securities Act of 1933 and the Investment Company Act of 1940, as well as the impact of state securities laws, including state investment adviser registration requirements. I often hear new fund advisers say that they intend to rely on a particular exemption from one law and assume this exemption applies across the board to all securities laws. This post will explore the different statutes and regulations that govern private fund advisers and the registration exemptions which are usually relied upon.
[Read more…]The Venture Capital Adviser Exemption Explained
Section 203(l) of the Investment Advisers Act of 1940 (the “Advisers Act”), also known as the venture capital adviser exemption, provides that an investment adviser that solely advises venture capital funds is exempt from registration with the SEC under the Advisers Act. The term “venture capital fund” is not defined in the text of the Advisers Act; instead, the term is defined in SEC Rule 203(l)-1(a) as a private fund that meets certain conditions. This article looks at each of these conditions and explains what is needed to meet them. [Read more…]
Is New York’s Form 99 Required When a Rule 506 Offering Has New York Investors?
The vast majority of private companies raising capital use Rule 506 of Regulation D, which, if complied with, ensures the securities being sold are exempt from registration with the Securities and Exchange Commission (SEC) because the offering of these securities does not involve “any public offering.” One of the primary advantages of a Rule 506 offering is that it is considered an offering of “covered securities,” which means that individual states cannot require issuers who meet the conditions of Rule 506 to register their offerings at the state level. By granting covered security status to Rule 506 offerings, Congress greatly reduced the compliance costs of companies raising private capital who would otherwise have to comply with the unique registration or exemption requirements of each state where one of their investors happened to live.
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