One of the most significant provisions of the Jumpstart Our Business Startups (JOBS) Act is its elimination of the general solicitation ban currently contained in Rule 502 for Rule 506 offerings sold only to “accredited investors.” As a result, hedge funds will be able to advertise to investors through the internet, mass mailings, and other media. Previously hedge funds have been banned from soliciting or advertising their private offerings to the general public. This prohibition has created confusion among hedge fund managers because of uncertainty about the meaning of “general solicitation.”
The JOBS Act requires the Securities and Exchange Commission (SEC) to eliminate the ban on general solicitation and advertising as long as all purchasers are either “accredited investors” or “qualified institutional investors.” An “accredited investor” includes an individual whose net worth is at least $1 million, excluding the value of his/her primary residence or who meets certain income criteria. We have previously discussed the definition of “accredited investor” in Financial Advisers Should Note More Restrictive Accredited Investor Definition. A “qualified institutional investor” includes companies that manage a minimum at $100 million in assets. Under the JOBS Act, the SEC must adopt rules to eliminate the ban on advertising for an offering by a private issuer within 90 days.