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W I N T E R 2 0 1 4
45
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Filings protocol:
­
Form U-2, Form D (SEC & State
Notice Filings) and filing fees.
­
FINRA private equity filings ­
Rule5123
·
Compliance Manual
Private Equity and
Private Funds ­
Regulatory Considerations
Private Equity
Private equity involves the non-public
issuer's securities and/or an issuer's
(public or private) non-public securities.
The non-public nature of the securities
depends upon the respective registration
exemptions. Exemptions apply at the
issuer level for project finance purposes
and at the fund level for private funds.
Common registration exemptions for
project finance include §4(2) of the
Securities Act of 1933, as amended, and
Regulation D promulgated thereunder.
Within Regulation D, the most common
exemption is Rule 506. A quick
summary of some of the private equity
exemptions appears below:
Focus on Regulatory Exemptions to
Maintain Unregistered Status ­
Partial List
Private Equity Exemptions
Regulation D
Most Common Retail Private Equity
Exemption ­ Rule 506:
·
Raise unlimited amount of money
·
"Unlimited" Accredited Investors
and up to 35 unaccredited investors
·
No general solicitation
·
Preempts state substantive law
See §12(g)(1) of the Securities Act
and the JOBS Act for maximum number
of investors
Other Considerations:
·
Accredited Investor definition
·
Accredited Investor entities not
formed to purpose of investing in
offering
·
Purchases cannot be underwriters
(reasonable care standard ­ 502(d))
·
Transfer restrictions and restrictive
legends
·
Form D ­ federal filing
·
Blue Sky Form D and ancillary
notifications/fees
·
Audits for financials if sold to non-
Accredited Investors
·
Heightened scrutiny for accredited
status ­ tie to subscription agreement
·
No general solicitation, except
pursuant to the Jobs Act
·
Preexisting relationships ­ common
practice to demonstrate absence of
general solicitation
·
Integrated offerings: six-month gap to
avoid presumption of integration
Other factors For Offering Integration:
·
Whether the sales are part of a single
plan of financing;
·
Whether the sales involve issuance of
the same class of securities;
·
Whether the sales have been made at
or about the same time;
·
Whether the same type of
consideration is being received; and
·
Whether the sales are made for the
same general purpose.
Rule 144A: Institutional Offerings ­
QIBs ­ $100 million (discretionary/
nonaffiliated) and Entity Type
Regulation S
Overseas Offerings
·
Best sold to QIBs
·
Be aware of local marketing
regulations overseas, particularly to
retail clients
Bicameral Offerings ­ Separate
Subscription Agreements Advisable
Private Funds
Traditionally, any unregistered collective
investment initiative that pools fractional
investment interests in reliance upon
registration exemptions of the Investment
Company Act of 1940, as amended,
for the purposes of investing in the
securities of another company (excludes
direct investments/project finance). Two
of the common exemptions are briefly
referenced below. However, an extensive
filing may be required on Form PF,
depending upon the type of fund that
exists.
Private Investment Company ­
Basic Exemption, Section 3(c)(1)
Aggregate 10% owners ­ count their
owners
Knowledgeable employee generally
exempt from 100 investor threshold
Institutional Private Investment
Company

Section 3(c)(7) ­ Qualified Purchaser
i. Natural person who owns
$5,000,000 in "investments"
ii. Gertain family companies & estates
that own $5,000,000 in investments
iii. Owns/invests for other QPs
(discretionary basis) $25,000,000
in investments
Cannot mix 3(c)(1) & 3(c)(7) funds ­
must be separate offerings/feeders