SEC Focuses on Hedge Funds JOBS Act Evasion

The SEC has issued a report which outlines concerns related to implementation of the new requirements of the JOBS Act. This may surprise some people because in large part most of the media attention focused around the JOBS Act has centered on the new marketing and fund raising freedoms it will provide investors, as opposed to enhanced requirements.

Specifically, the SEC report addresses the anti-evasion provision of the Securities Exchange Act of 1934. This provision is contained in the Rule 12g5-1 subsection (b)(3) of the Exchange Act.  The SEC highlights in their report, potential ramifications for funds and investors that attempt to circumvent the rules relating to reporting requirements that are triggered based on the number of so-called holders of record. This includes reporting thresholds which are triggered when a fund manager has more than 500 accredited investors.

The SEC report highlight also outlines concerns that funds may try to evade the rules through special purpose vehicles as well as arguments that funds may attempt to grow in size to skirt certain reporting requirements.

Investors should remain conscious of the continued guidance from the SEC on these issues. Such regulatory reports provide investors with further tools to augment their existing operational due diligence processes in evaluating the ways in which their hedge funds adopt to changing regulations. Additionally, with such information investors can better determine if their funds are well within safe territory or walking a fine line which may raise their potential liabilities from SEC attention.

This entry was posted in Compliance, JOBS Act, SEC and tagged , , , . Bookmark the permalink.

Comments are closed.