US Senate votes to abolish 'Reg D' quiet period

The US Senate approved legislation last week eliminating US Securities and Exchange Commission regulation D requirements that prohibit private equity and venture capital firms from making general solicitations or advertisements for their vehicles.

The Jumpstart Our Business Startups Act (JOBS), if eventually signed into law, could lead to significant changes to private equity’s fundraising model, sources told Private Equity International. 

Under current SEC guidelines, firms can not provide information about their investment vehicles to non-accredited investors. Changes made under the JOBS Act would allow fund managers to publicly disclose fundraising efforts. 

“What that means, is that, as long as an issuer, private equity or other, is willing to accept potential disclosure liability, they can broadly offer their securities for sale,” Matthew Kaplan, a securities partner at Debevoise & Plimpton said. 

The legislation would also alleviate pressure to devote resources toward keeping marketing efforts under wraps in compliance with SEC regulations.  

“It could eliminate a lot of the potential foot faults that you could fall into,” said Thomas Friedmann of Dechert. “It would eliminate some of the concerns about inadvertent communications.”

However, investors shouldn’t expect firms to start broadcasting their marketing efforts on highway billboards or Twitter anytime soon, sources said. While easing the restrictions around fundraising would likely be welcomed by the industry, overpublicising your investment vehicle carries its own risks. 

“There is some cautious optimism about these changes,” Kaplan said. “You actually have to make sure that all purchasers of the securities are accredited investors … it will still make sense to have controls in place so that you don’t have every Tom, Dick and Harry come through your door looking for room in your investment.”

The legislation’s broad goal of eliminating barriers to funding for US small businesses has received bipartisan support in both chambers of Congress. In addition to eliminating some regulation D restrictions, the JOBS Act also allows companies to “crowd-fund” by issuing shares in exchange for capital, as well as easing barriers to initial public offerings. 

The House of Representatives had already passed a separate version of the bill earlier this month. Amendments were made to the JOBS Act in the Senate, which forces the legislation back to the House for a second vote before it can be signed into law by President Barack Obama. The President has already expressed his support for the bill, according to reports.