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CFTC Allows Commodity Pools to Take Advantage of JOBS Act Private Offering Reform
Practical Law Legal Update 8-580-9530 (Approx. 4 pages)
CFTC Allows Commodity Pools to Take Advantage of JOBS Act Private Offering Reform
by Practical Law Finance
| Published on 12 Sep 2014 • USA (National/Federal) |
The CFTC issued Exemptive Letter No. 14-116, which relieves certain commodity pool operators (CPOs) from restrictions on advertising to the general public consistent with the JOBS Act.
On September 9, 2014, the CFTC issued Exemptive Letter No. 14-116, which relieves certain commodity pool operators (CPOs) from restrictions on advertising to the general public. Under the Jumpstart Our Businesses Startups (JOBS) Act, the SEC was required to adopt more lenient rules on advertising private placements under Regulation D and Rule 144A (see Practice Note, Section 4(a)(2) and Regulation D Private Placements). The JOBS Act required the SEC to amend certain of its rules under the Securities Act to liberalize the ban on using general solicitation and advertising to market unregistered securities offerings conducted in reliance on these rules. These amendments rendered certain exemptions from CFTC disclosure, reporting and recordkeeping rules unavailable to CPOs registered with the CFTC that chose to take advantage of the SEC's relaxed offering rules.
The JOBS Act required the SEC to amend Rule 506 of Regulation D under the Securities Act, a safe harbor from SEC registration for certain securities offerings. Before the JOBS Act amendments, one of the conditions of Rule 506 was that offering participant could not market the securities using general solicitation or advertising. The SEC’s amendments created Rule 506(c), which permits Rule 506 offerings to be marketed with general solicitation and advertising provided that all purchasers in the offering are accredited investors and certain other requirements are met.
The JOBS Act also required the SEC to amend Rule 144A under the Securities Act, an exemption from SEC registration for resales of securities to qualified institutional buyers (QIBs). Before the JOBS Act amendments, one of the conditions of Rule 144A was that securities could be offered and sold only to QIBs, effectively prohibiting offering participants from marketing a Rule 144A resale using general solicitation or advertising. Under the JOBS Act amendments, securities may be offered to non-QIBs so long as they are sold only to QIBs, effectively removing the prohibition on general solicitation and advertising.
However, there was no corresponding CFTC regulation, which left CPOs, including many hedge funds, unable to take advantage of the SEC's relaxed solicitation and advertising rules without disqualifying themselves from certain CFTC exemptions on which they relied. Specifically, under:
- CFTC Regulation 4.7(d) (17 CFR 4.7(d)), CPOs may be relieved from providing certain disclosure, as well as from periodic and annual reporting and recordkeeping requirements, but must not market offerings to any persons other than Qualified Eligible Persons (QEPs), as defined in 17 CFR 4.7(a)(2) and (3).
- CFTC Regulation 4.13(a)(3) (17 CFR 4.13), CPOs may be exempted from registration if they meet certain conditions, which include a requirement that securities be “offered and sold without marketing to the public.”
In an effort to allow CPOs to rely on these exemptions and take advantage of the SEC's JOBS Act amendments, Letter 14-116 provides exemptive relief from Regulation 4.7(b) requirements that an offering be offered solely to QEPs, and from the requirement in Regulation 4.13(a)(3)(i) that securities be “offered and sold without marketing to the public,” provided that:
- The party seeking relief under Letter 14-116 is a CPO that is a 506(c) Issuer or a CPO using 144A resellers.
- The CPOs claiming the exemptive relief files a notice with the CFTC's Division of Swap Dealer and Intermediary Oversight. A claim submitted by a CPO will be effective upon filing, provided it is complete and accurate and includes:
- The name, business address, and main business telephone number of the CPO claiming the relief;
- The name of the pool(s) for which the claim is being filed;
- Whether the CPO claiming relief is a 506(c) Issuer or is using one or more 144A Resellers;
- Whether the CPO intends to rely on the exemptive relief pursuant to Regulation 4.7(b) or 4.13(a)(3), with respect to the listed commodity pool. If relying on Regulation 4.7(b), the CPO must represent that the CPO meets the conditions of the exemption, other than the conditions explicitly addressed by Exemptive Letter No. 14-116. If relying on Regulation 4.13(a)(3), the CPO must represent that it meets the conditions of the exemption, other than that provision’s prohibition against marketing to the public.
- An authorized signature of the CPO.
Requests for relief should be sent to the CFTC via email at [email protected] and stating “JOBS Act Marketing Relief” in the subject line. The relief in Letter 14-116 remains effective until the effective date of any final CFTC action that addresses the JOBS Act and the SEC’s regulatory actions relating to public solicitation.