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What is meant by a "Private Offering" or "Private Placement?"
The whole point of the private offering is to avoid burdensome registration and prospectus delivery requirements of the Federal Securities Laws. A "private offering" is exempted from such compliance. Regulation D provides the "safe harbor" provisions which, if complied with, will have the effect of exempting the private offering from compliance with the registration and prospectus delivery requirements of the Federal Securities Laws. It does not exempt the offering and persons associated therewith from compliance with the fraud provisions of the Federal Securities Laws or compliance with the various State Securities Laws. However, pursuant to recent federal legislation, states are prohibited from imposing their blue sky regulation on securities offered pursuant to Rule 506 of Regulation D except for the filing of the Form D or a substantially similar form and the payment of filing fees.
How do I offer to sell interest in my fund ?
Rule 502(C) of Regulation D prohibits any form of a general solicitation or general advertising. Generally the interests in your hedge fund may sold by Registered Broker Dealers or officers of the management (general partner) to those persons with whom there has been a prior relationship.
Is the hedge fund restricted to selling only to "accredited investors" and what is an "accredited investor"?
Rule 501 of Regulation D provides the definition "accredited investor" and provides that any person who comes within the following enumerated categories, or who the issuer reasonably believes to come within those categories, at the time of the sale of securities is an "accredited investor." Those categories include, banks or savings and loans association whether acting individually or as a fiduciary; any broker or dealer ; any insurance company, investment company registered under the Investment Company Act; employee benefits plan if the investment decision is made by a plan fiduciary as defined by such Act, which is either a bank, savings and loan association, insurance company, or registered advisor, or if the employee benefit plan has total assets in excess of $5 million or is a self-directed plan, with investment decisions made solely by persons who are accredited investors; any private business development company as defined by the Investment Advisors Act of 1940; any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose not formed for the specific purpose of acquiring securities offered, with total assets in excess of $5 million; any director, executive officer, or general partner of the issuer of the securities being offered or sold or any director, executive officer, or general partner of a general partner of that issue; any natural person whose individual net worth or joint net worth with that person’s spouse at the time of his purchase exceeds $1 million; any natural person who had an individual income in excess of $200,000 for each of the two most recent years or joint income with that person’s spouse in excess of $300,000 for each of those years and has a reasonable expectation of reaching the same income level in the current year; any trust with total assets in excess of $5 million not formed for the specific purpose of acquiring securities offered, whose purchase is directed by a sophisticated person as described in Section 230.506(b)(2)(ii); and, any entity in which all of the equity owners are accredited investors. Under Regulation D, a hedge fund can accept up to 35 non-accredited investors. However, Rule 502(B) requires that hedge funds offered to non-accredited investors have certain adequate financial statements.
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Source by Turn Key Hedge Funds
