In early 2013, the Commodity Futures Trading Commission decided to grab for more regulatory oversight and revoked some long-standing exemptions. The CFTC also got handed the regulatory oversight of non-securities derivatives. As a result, private funds with interest rate hedges had to figure out if they had to register with the CFTC as a commodity pool operator. One of the limitations with registration was a ban on advertising.
As required by the Jumpstart Our Business Startups Act in July 2013 the Securities and Exchange Commission amended Rule 506 to permit “general solicitation” and “general advertising” for private placements as long as certain other conditions are met.
Private funds could advertise under the SEC rules, but could not under the CFTC rules.
Last week, the Commodity Futures Trading Commission issued an exemptive letter that would allow private funds treated as commodity pools to use the JOBS Act general solicitation provisions.
Private fund sponsors who relied on a CPO registration exemption under CFTC Regulation 4.13(a)(3) or exemptive relief from certain registered CPO obligations under CFTC Regulation 4.7(b) were prohibited from engaging in general advertising or general solicitation under Rule 506(c). CFTC Regulation 4.13(a)(3) requires that interests in an applicable pool must be “offered and sold without marketing to the public in the United States”. I heard some arguments that the limitation only prevented advertsing as a commodity pool. Few felt comfortable with that position.
Exemptive Letter No. 14-116 provides exemptive relief from certain provisions in Regulations 4.7(b) and 4.13(a)(3) and permits CPOs relying on these Regulations to engage in general advertising and general solicitation under Rule 506(c). For some reason the CFTC decided to not make the exemption self-executing.
You need to make a filing. In order to rely on the exemptive relief in Letter 14-116, you must make a written claim for the exemption by filing with the CFTC.
This is good news for funds that want to use 506(c) or at least avoid the public marketing footfault in fundraising. The only question is why did it take the CFTC over a year to fix its mistake.
Sources:
- Exemptive Letter No. 14-116 (.pdf) Exemptive Relief from Provisions in Regulations 4.7 (b) and 4.13 (a)(3) Consistent with JOBS Act Amendments to Regulation D and Rule 144